Theory question 103
Foreign TradeCommerce 2 (essay)
(a) What is balance of payments?
(b) List and explain six methods used in correcting an adverse balance of payment.
Show the model answer
Model answer
(a) Balance of payments is a record of all a country's receipts from and payments to other countries (visible and invisible trade and capital flows) over a period, usually a year.
(b) Any six, explained: import restrictions (tariffs, quotas, bans); export promotion; devaluation; exchange control; import substitution industries; foreign loans/IMF assistance; attracting foreign investment; reducing government spending abroad; encouraging tourism; deflationary policies.
Explanation
Each method should reduce payments or raise receipts.