CHAPTER 12 MEASURING INT TRADE AND FIN

Question 1

What is the balance of payments?

Answer 1

The balance of payments is a comprehensice record of the country’s international receipts and international payments vetween the residents and government of a country and the rest of the world, over a period of time.
It is made up of the current and capital and financial account.

Question 2

What are the components of the current account?

Answer 2

1. Visible trade account
   - Records imports and exports of physical goods from commodities to manufactured goods.
2. Invisible trade account
   - Records imports and export of SERVICES, consisting of the different types of services that a country sells to or buys from other countries.
   - Shipping, insurance and banking services (shipping freight, passenger fares, harbour and canal dues, fees and commissions. When rendered to foreigners, inflow of money. Outflow is when foreigners spend.)
   - Transport and travel (transport charges and passenger fares connected with tourist trade.)
3. Unilateral transfers
   - All gifts and remittances sent abroad by local residents. Also records aids and grants given/received by local government to foreign governments.
4. Income flows-interests profits and dividends
   - Interest is earned on loans to foreign govts/deposits in foreign banks
   - Profits/dividends are received from foreign companies
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