Balance of payments

Question 1

Balance of payments

Answer 1

a record of all the financial transactions taking place between the UK and any other country

Question 2

Components of balance of payments

Answer 2

Capital account , financial account , CURRENT ACCOUNT

Question 3

Capital account

Answer 3

Has two components
- small component of BOP
- shows when ownership of assests have ben transferred accross borders

Question 4

Financial account

Answer 4

measure of inflows and outflows within a country regarding financial capital.

Question 5

Components of finanical account

Answer 5

1. Net FDI
2. Net portfolio investment
3. hot money flows

Question 6

Net FDI

Answer 6

Purchase and sale of productive assests internationally

Question 7

Net portfolio investment

Answer 7

Purchase and sale of financial assests internationally e.g bonds , shares

Question 8

Hot money flows

Answer 8

Refers to purchase and sale of currency where speculators aim to take advantage of exchange rate/ interest rate fluctuations

Question 9

Current account

Answer 9

A measure of inflows and outflows regarding goods, services, factor of production and the other international trasnfers

Question 10

What does the current account measure

Answer 10

Measures the earnings made by the use of assests rather than the assests themselves ( the assests themselves are in the capital account)

Question 11

What are the components of the current account

Answer 11

1. Trade in goods
2. Trade in services
3. Primary income
4. Secondary income

Question 12

Primary income

Answer 12

Net investment income - income from investing in other countries

Question 13

Secondary income

Answer 13

Transfers of money between countries
- remittances

Question 14

What is invisible vs visible

Answer 14

Invisible refers to services
Visible refers to goods

Question 15

What is a balance of payments inbalance

Answer 15

An inblance can either be a surplus or a defecit.

Question 16

Surplus of BOP

Answer 16

When net inflows are greater than net outflows e.g China

Question 17

Defecit of BOP

Answer 17

When net outflows are greater then net inflows e.g the Uk

Question 18

How to fix a defecit of BOP ( this will usually always relate to current account)

Answer 18

1. Reduce imports
2. Increase exports

Question 19

How to reduce imports

Answer 19

1. Decrease interest rates ( expansionary monetary policy) - this depreciates exchange rate , makes foreign goods less attractive to domestic markets as the domestic price of foreign goods is higher.
2. Prtotectionist policies - focus on tarrifs , UK - Tabacco , Oil , Alcahol
3. Reduce domestic unemployment ( domestic firms will increase production and therefor a higher proportion of somestic demand can be satisfied by domestic producers hence less imports will be required to satisfy the domestic population)

Question 20

How to increase exports

Answer 20

1.