Balance of Payments

Question 1

Balance of payments

Answer 1

A record of all financial transactions between an economy and the rest of the world.

Question 2

Balance of trade

Answer 2

The difference between the value of country’s exports and imports of goods and services combined.

Question 3

Capital account

Answer 3

Formerly known as financial account, now a small section of the account which includes effects of debt forgiveness, sale/transfer of patents, copyrights, franchises, leases and other transferable contracts across borders.

Question 4

Current account

Answer 4

Measures the difference between money and credit going in and out of an economy (through exports, imports and income paid on assets both home and abroad).

Question 5

Current account deficit

Answer 5

When net external trade and income is negative leading to a net outflow of demand from the circular flow.

Question 6

Current account surplus

Answer 6

When net external trade and income is positive, a net injection into the circular flow.

Question 7

Cyclical trade deficit

Answer 7

A trade deficit that arises purely due to changes in the business cycle, for example many countries run a trade deficit when strong growth increases demand for imports.

Question 8

Euro

Answer 8

The European single currency was created in 1999 and entered common circulation in 2002. As of 2019 there are 19 nations in the Euro Zone.

Question 9

Exchange rate

Answer 9

Exchange rates are the price of one country’s’ currency in relation to another.

Question 10

Export revenue

Answer 10

Sales from selling goods and services overseas, an injection of aggregate demand.

Question 11

External competitiveness

Answer 11

External competitiveness is the ability of businesses to sell their goods and services at competitive prices in a foreign country / overseas market.

Question 12

Hot money

Answer 12

Money that flows freely and quickly around the world looking to earn the best rate of return. It might be invested in any asset whose value is expected to rise (e.g. property or shares) or placed in an account offering the best real rate of interest.

Question 13

Net primary income

Answer 13

Part of the current account of the balance of payments, it measures the net flow of profits, interest and dividends from investments in other countries and net remittance flows from migrant workers.

Question 14

Net secondary income

Answer 14

Part of the current account of the balance of payments, it includes overseas aid / debt relief, military grants and (for the UK) net payments to the European Union.

Question 15

Net trade

Answer 15

The balance between the monetary value of exports and imports.

Question 16

Overseas assets

Answer 16

Assets such as businesses, shares, property owned in overseas countries and which might generate a flow of primary income which is a credit item on the current account.

Question 17

Protectionism

Answer 17

Restricting trade through tariffs and other forms of import controls such as quotas.

Question 18

Purchasing power

Answer 18

The buying power of a unit of currency. It is inversely related to the rate of inflation.

Question 19

Remittances

Answer 19

Sending money to people in another country. For many lower-income nations, remittance income is now a big contribution to their Gross National Income (GNI).

Question 20

Structural trade deficit

Answer 20

A trade deficit that arises due to supply-side weaknesses rather than a change in GDP or currency – usually caused by poor price and non-price competitiveness.

Question 21

Trade deficit

Answer 21

A trade deficit occurs when a country imports a greater value of goods and services than it exports. A trade deficit as a net withdrawal from the circular flow of income.