Chapter 19 Flashcards
(29 cards)
Define balance of payments. List all that is included
BALANCE OF PAYMENTS is a summary of all the transactions that took place between the individuals, firms and government units of one nation and those of all other nations during
a year.
Exports and imports of goods
* Exports and imports of services
* Tourist expenditures
* Interest and dividends received or paid abroad
* purchases and sales of financial or real assets abroad
What are the 2 broad categories into which the balance of payments is organised? Shortly describe what each deals with.
- Current account : records exports and imports of goods and services.
- Capital and financial account : which mostly deal with international asset exchanges.
Balance of paymentd deficit
The amount by which in-payments from a nation’s stock of official reserves are required to balance that nation’s capital and financial account with its current account (in its balance of payments).
Decrease in the foreign exchange reserves
Define balance of payment surplus
The amount by which out-payments to a nation’s stock of official reserves are required to balance that nation’s capital and financial account with its current account (in its international balance of payments).
Increase in the foreign echange reserves
Define official reserves
Foreign currencies owned by the central bank of a nation.
Define current account. What is included?
The section in a nation’s international balance of payments that records its exports and imports of goods and services, its net investment income and its net transfers.
* Import Goods
* Net Income
* Export Goods
Define trade balance
The export of goods (or goods and services) of a nation less its imports of goods (or goods and services).
Define trade surplus and deficit
- surplus: The amount by which a nation’s exports of goods (or goods and services) exceed its imports of goods (or goods and services).
- deficit: The amount by which a nation’s imports of goods (or goods and services) exceed its exports of goods (or goods and services).
What impact does South African exports have on the foreing demand for rand the the supply of currencies?
SA exports increase foreign demand for rand, the fulfilment of that demand increases the supply of foreign currencie s owned by SA banks and availabe to SA buyers.
SA exports are ____ (plus/minus) because they are a ____ (debit/credit)
plus
credit
SA imports are a ____ (plus/minus) because they are are a ____ (debit/credit)
minus
debit
How to calculate the balance on current account
The exports of goods and services of a nation less its imports of goods and services plus its net investment income and net transfers in a year.
Define the financial account. What does it consist of ?
The section in a nation’s international balance of payments that records its financial flows in the short and long terms; in other words, short- and long-term investments into the country and those made by local businesses and individuals abroad.
Records international transactions in assets and liabilities.
* Other investments
* Financial derivatives
* Direct investments
* Portfolio investments
Define exchange ratae
Exchange rate is the rate at which one currency will be exchanged for another currency
Differentiate between direct quotation of exchange rate and indericect quoration of exchange rate.
- Direct: amount of domestic currency needed to buy one unit of the foreign currency e.g. R19.05 = US$1 quoted as USD/ZAR19.05.
- Indirect: amount of foreign currency required to buy one unit of the domestic currency e.g. R1 ≈ US$0.05.
What are the main types of exchange rate systems and shortly describe each.
2 “pure” types
* Flexible or floating-exchange-rate system: through which demand and supply determine exchange rates and in which no government intervention occurs.
* Fixed-exchange-rate system: through which governments determine exchange rates and make necessary adjustments in their economies to maintain those rates.
3rd type:
Managed floating exhange rate: combination of the 2. allowed to change (float) as a result of changes in currency supply and demand but at times is altered (managed) by governments via their buying and selling of particular currencies.
Ceteris paribus, if the demand for a nation’s currency declines, what will happen to the value of the currency?
The value of the currencly will decline
What happend to a nation’s currency if the supply thereof increases?
It inflates
When the rand price of a GBP falls, for example from R2 = £1 to R1 = £1, the rand has
________ blank , in terms of the pound.
appreciated
When the rand price of a GBP rises, for example from R20 = £1 to R22 = £1, the rand has ________ blank , in terms of the pound.
depreciated
What are the determinants of flexible exhange rates?
- Change in taste
- change in relative income
- change in relative prices
- change in relative real interest rates
- speculation
What are some disadvantages of flexible exhange rates?
Uncertainty and diminished trade
Terms of trade changes
Unstable/volatile
What will happen to the rand in each of the following scenarios:
1. The demand for the rand increases
2. The demand for the rand decreases
3. The supply for the rand increases
4. The supply for the rand decreases
- appreciate
- depreciate
- depreciate
- appreciate
Suppose that American influencers visiting South Africa discover biltong. They share biltong recipes and reviews on social media platforms such that there is an aggregate increase in demand for biltong from South Africa.
Ceteris paribus,what is likely to happen to the rand and dollar?
- The supply-of-dollars curve will shift to the right
- The dollar will depreciate
- The rand will appreciate
- Americans supply more dollars in the exchange market in order to purchase more biltong from SA
