REVISION - Short Questions - Balance
of Payment
1. Define Balance of payment?
Balance of payment
is the systematic recording of transaction of a country with the rest of the
world
2.
What are the main parts of Balance
of payment?
The
main parts of Balance of payment are; 1) current account 2) the capital account
and 3) the financial account.
3.
Define visible trade?
The
export and import of goods are referred to as visible trade
4.
Define the balance of visible trade?
The
difference between the value of exports and imports of physical items is known
as balance of visible trade.
5.
Define invisible trade?
The
export and import of services are referred to as invisible trade
6.
Define balance of invisible trade?
The
difference between the value of import and export is known as balance of invisible trade.
7.
When does Balance of payment become
deficit or unfavourable?
When
import exceeds export, the balance of
payment become deficit or unfavourable.
8.
What are the measures to correct the
imbalances in Balance of payment?
There
are different measures to correct the
imbalance. 1) Deflation, 2)
Government raise interest rates, 3)
Protectionism, 4) Devaluation
9.
Define Deflation?
Deflation is a
decrease in the general price level of goods and services.
10. What situation is referred to as deflation?
When the inflation rate falls below 0% (a negative
inflation rate) it is referred to as deflation.
11. What would happen to the value of money when deflation
takes place?
Deflation increases the real value of money.
12.What happen to the pattern of consumer expenditure
when there is an increase in the real value of money?
Increase in the real value of money allows one to buy
more goods with the same amount of money over time.
13.What is the effect of raising
interest rate in an economy?
When the government raise interest rates, the economy attract
flow of money into the country. High interest rate make borrowing expensive and
consumers borrow less to spend and firms less to invest.
14. Define protectionism?
Protectionism refers
to the policies designed to prevent trade between countries, such as tariff,
quota, embargo, exchange control, and so on.
15. Define devaluation?
Devaluation refers
to the lowering of the value currency to make the exports cheaper for foreign
countries to buy. At the same time, the imports will become more
expensive
16. What transactions are included in Current account of balance of payment?
Current
account of balance of payment includes all the transactions of visible trade,
invisible trade, income and current transfers.
17. What transactions are included in Capital
Account of Balance of Payment?
The
Capital Account of Balance of Payment
includes the
1) Payment for a change of ownership of fixed
assets such as houses, machinery and factories (fixed assets)
2)
Cancellation of debts.
18. What transactions are included in Financial
Account of Balance of Payment?
The
Financial Account of Balance of Payment
includes all records of
1)
Investments in capital, shares and
loans.
2)
Direct inward investment received as
foreign firm sets up a factory, office or retail outlet, any reinvestment
of profits.
3)
Portfolio investments received or
paid overseas for purchases or sales of shares of companies (equity) and loans
(debt).
4)
Government drawing on or additions
to their reserves of foreign currencies.
19.
What is the reason for the errors in
the Balance of payments?
There
are numerous errors and omissions which are due to payments not being recorded
and to delays in obtaining information.
20. How do the errors and omissions are
represented in the balance of payment account?
The
balancing item represents the total of the errors and omissions.