Theory question 101
Balance of Payments and Exchange RatesThe table below shows the composition of exports and imports of a hypothetical country. Use the information in the table to answer the questions that follow.
Exports | Amount ($) | Imports | Amount ($)
Crude oil | 120,000,000 | Rice and flour | 140,000,000
Groundnuts | 40,000,000 | Petroleum product | 80,000,000
Tourism | 45,000,000 | Vehicles and accessories | 50,000,000
Shipping & Insurance | 60,000,000 | Banking services | 60,000,000
Bauxite | 80,000,000 | Freight and insurance | 40,000,000
(a) Calculate the value of visible exports.
(b) Calculate the balance of trade for the country.
(c) List the items of invisible exports and imports.
(d) Calculate the current account balance of the country.
(e) Is the country developed or developing? Give one reason for your answer.
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(a) Visible exports = crude oil 120 m + groundnuts 40 m + bauxite 80 m = $240,000,000
(b) Visible imports = rice and flour 140 m + petroleum products 80 m + vehicles 50 m = $270,000,000; balance of trade = 240 m − 270 m = −$30,000,000 (deficit)
(c) Invisible exports: tourism; shipping and insurance. Invisible imports: banking services; freight and insurance.
(d) Invisible exports = 105 m; invisible imports = 100 m; current account = (240 + 105) − (270 + 100) = 345 m − 370 m = −$25,000,000 (deficit)
(e) Developing: it exports mainly primary products (crude oil, groundnuts, bauxite) and imports food, refined petroleum and manufactured goods.
Visible items are goods; invisible items are services.