Lesson 37 - Balance of Payments

Question 1

Define the term Balance of Payment?

Answer 1

The Balance of Payments (BoP) records all financial transactions made between consumers, businesses and the government in one country with other nations.

Question 2

What are the two aspects of the balance of payments?

Answer 2

The Current Account
The Capital Account

Question 3

What does the current account consist of?

Answer 3

Balance of trade in goods
Balance of trade in services
Net primary income (dividends, interest, profits and migrant remittances)
Net secondary income (military and overseas aid)

Question 4

What does the capital account consist of?

Answer 4

It includes transactions that result in a change of ownership of financial assets and liabilities between UK residents and non residents.
Net balance of foreign direct investment flows
Net balance of portfolio flows
Balance of banking flows

Question 5

What should the overall balance of payments be?

Answer 5

Zero, it should be equal

Question 6

If a country has a current account deficit then its capital account will be in what?

Answer 6

Surplus

Question 7

When does a current account surplus occur?

Answer 7

When a nations exports are greater than its imports over a period of time.

Question 8

Give four consequences of a current account surplus?

Answer 8

Appreciation of the currency
Increased ownership of foreign assets
Reduced levels of domestic consumption
Possibility of increased protectionism