The Balance Of Payments

Question 1

What does the current account involve

Answer 1

• balance of trade in goods
• balance of trade in services
• net primary income
• net secondary income

Question 2

What is net primary income

Answer 2

E.g. interest, profits, dividends and migrant remittances

Question 3

What is net secondary income

Answer 3

Transfers i.e. contributions to EU, military aid, overseas aid

Question 4

What is the capital account including

Answer 4

Same/transfer of patents, copyrights, franchises, leases and other transferable contracts.

Question 5

What does the financial account include

Answer 5

Transactions that result in a change of ownership of financial assets and liabilities between U.K. residents and non-residents

Question 6

What is the balance of payments account including

Answer 6

Current account
Capital account
Financial account

Question 7

What is FDI

Answer 7

Investment from one country into another that involves establishing operations or acquiring tangible assets, including stakes in another business

Question 8

What are the two flows of FDI

Answer 8

• inward (into the UK)

- outward (out of the UK)

Question 9

When does a portfolio investment happen

Answer 9

When people / businesses from one country buy shares or other securities such as bonds in other nations

Question 10

Examples of a portfolio investment

Answer 10

UK investor might buy some shares in Google (this would be a portfolio investment outflow for the U.K.)

Question 11

What happens if a nation is running a current account deficit

Answer 11

• external deficit
• net outflow of income from the circular flow
• deficit countries need to run a financial current surplus