BOP: Current account deficit

Question 1

Balance of payments

Answer 1

Record of all transactions relating to international trade

Question 2

Capital & financial account

Answer 2

Part of BOP where flows of savings investments and currencies are recorded

Question 3

Current account

Answer 3

Part of the BOP where 4 all exports and imports are recorded

Question 4

Exports

Answer 4

Goods and services sold overseases

Question 5

Imports

Answer 5

Goods and sevices bought overseases

Question 6

What does current account include?

Answer 6

• Income from interest, profits and dividens on assests owned overseas (exports)
• Income paid in the form of interest, profts and dividends to foreign owners of assets at home (imports)
  Visibile and invisible trade

Question 7

Visible trade

Answer 7

Trade in physical goods

Question 8

Balance of trade

Answer 8

Difference between the total value of visible exports and imports

Question 9

Invisible trade

Answer 9

Trade in services
- Includes tourism, financial services, transports (such as shipping)
- Interest, rent and profits are called primary income
- Revenue from gov interactions is called secondary income

Question 10

Current balance

Answer 10

The difference between exports and imports in a country

Question 11

Current account deficit

Answer 11

Value of imports is greater than exports

Question 12

Current account surplus

Answer 12

Value of exports is greater than imports

Question 13

Capital financial accounts

Answer 13

Records the flow of money in and out of a country, resulting from transactions related to savings, investments and speculation

Question 14

Impact of current account deficit on leakages from the economy

Answer 14

Persistence CAD suggests a country is dependant on imports. Money flowing out & empolyment is at risk

Question 15

Exchange rates

Answer 15

Price of one currencfy in terms of another

Question 16

SPICED

Answer 16

Stronger Pound Imports Cheaper Exports Deara

Question 17

Reasons for deficits and surpluses

Answer 17

• Quality of domestic goods: high quality goods will increase demand for exports
• Quality of foreign goods: high quality goods from overseas will increase demand for imports
• Price of domestic goods
• Price of forign goods
• Exchange rate between countries

Question 17

WPIDEC

Answer 17

Weaker Pound Imports Deara Exports Cheaper

Question 18

Impact of current account deficit on inflation

Answer 18

High CAD could result in inflation

Question 19

Impact of current account deficit on low demand for exports

Answer 19

Country with high CAD might struggle to sell goodsd & services abroad - economic growth would reduce

Question 20

Impact of current account deficit on fundung the deficit

Answer 20

Will requirfe foreign currency to pay for rising the quantity of imprts that are being purchased. May need to borrow if a country’s foreign currency reserve is low.