Balance Of Payments

Question 1

What are the 3 parts of the balance of payments ?

Answer 1

Current account

Capital account

Financial account

Question 2

Capital account

Answer 2

Foreign aid , grants and gifts are accounted for

Question 3

Current account

Answer 3

Section of balance of payments where imports and exports of goods as well as income on investments in assets abroad owned by country’s residents (primary income)

And govement transfers to and from overseas organisations ( secondary income)

Question 4

Fianancial account

Answer 4

Overseas investment is accounted for

Question 5

What income is the current account made of

Answer 5

Primary and secondary income

Question 6

Current account deficit

Answer 6

Currency outflows exceed currency inflows

Question 7

Impact of current account is ?

Answer 7

Depreciating

Question 8

Why is the capital flows the financial account is made off

Answer 8

FDI and portfolio overseas investment

Question 9

Direct overseas investment (FDI)

Answer 9

Acquisition of real productive assets e.g factories shops etc

Includes takeover or merger with foreign countries

Question 10

Portfolio overseas investment

Answer 10

Acquisition of foreign financial assets by residents or financial institutions

Question 11

Short term capital flows ‘hot money’

Answer 11

Often follows change Intrest rates as investors seek highest possible return

Question 12

What must the current , capital and financial account sum up to ?

Answer 12

0 thus a country operating with a current account deficit must have a surplus in either the capital or financial account