Theory question 110
Foreign TradeCommerce 2 (answer five questions)
(a) Give the meaning of each of the following: (i) balance of trade (ii) balance of payments
(b) Describe four ways by which an adverse balance of payments may be corrected.
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(a)(i) Balance of trade is the difference between the value of a country's visible exports and visible imports over a period.
(ii) Balance of payments is the record of all a country's transactions with the rest of the world over a period – visible and invisible trade and capital movements.
(b) Any four, described: restrict imports by tariffs, quotas or bans; promote exports through incentives and export promotion; devalue the currency so exports are cheaper and imports dearer; exchange control to limit foreign spending; borrow from abroad or the IMF / use reserves; reduce government spending abroad; encourage foreign investment and tourism; encourage local production of imported goods (import substitution).
Explain how each measure cuts payments out or brings payments in.