Balance of Payments

Question 1

Definition

Answer 1

Measures a country’s transactions with the test of the world. A record of all the money going into and out of a country.
Balance of payments deficit = current account deficit (In exam).

Question 2

Three types

Answer 2

1. Current account (imports - exports)
2. Financial account ( financial transactions)
3. Capital account (capital goods)

Question 3

Current account

Answer 3

Payments for trade in goods and services plus net flows of primary and secondary income.

Question 4

Calculating current account

Answer 4

Sum of four separate balances:
1. Net balance of trade in goods2.
3.Net balance of trade in exports
3. Net primary income
4. Net secondary income

Question 5

Primary income

Answer 5

Measures the monetary flows generated from owning cross-border financial assets, known as investment income. Represents the returns from UK investments abroad and foreign-owned investment in the UK.

Question 6

Secondary income

Answer 6

Current transfers between residents and non-residents

Question 7

Remittances

Answer 7

Money sent by foreign workers back home

Question 8

Foreign aid

Answer 8

Assistance provided by one country to another

Question 9

Diaspora contributions

Answer 9

Contributions made by a country’s diaspora to support projects or family members in their home country

Question 10

Reasons for large UK trade deficit

Answer 10

Weakened export growth
Higher global prices for essential imports
Currency weakness