Theory question 106
Foreign TradeCommerce 2 (theory)
Country X is facing a situation where its total payments to other countries is greater than its total earnings from abroad.
(a) State the term that relates to the above situation.
(b) Explain six measures the country could take to correct the situation.
Show the model answer
(a) Unfavourable balance of payments (balance of payments deficit).
(b) Any six, explained: restrict imports through tariffs, quotas or bans; promote exports (export incentives, export promotion council); devalue the currency to make exports cheaper and imports dearer; exchange control to ration foreign exchange; import substitution (produce locally what is imported); borrow from abroad/IMF to finance the deficit; attract foreign investment; diversify the economy and exports; reduce government spending abroad; encourage tourism; deflationary policies to cut demand for imports.
Each measure should say how it cuts payments or raises earnings.