Theory question 102
Balance of Payments and Exchange RatesThe extract from a country's balance of payment account is shown below.
ITEM | IMPORT ($ million) | EXPORT ($ million)
Agricultural products | --- | 200
Mineral products | --- | 300
Consumer goods | 250 | ---
Capital goods | 400 | ---
Insurance | 50 | 25
Banking | 75 | 30
Transportation | 85 | 25
Loans | 150 | 60
Using the table above, calculate the: (a) balance of trade; (b) invisible trade balance; (c) balance on current account.
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(a) Visible exports = 200 + 300 = $500 m; visible imports = 250 + 400 = $650 m; balance of trade = 500 − 650 = −$150 m (deficit)
(b) Invisible exports (insurance, banking, transport) = 25 + 30 + 25 = $80 m; invisible imports = 50 + 75 + 85 = $210 m; invisible balance = 80 − 210 = −$130 m
(c) Current account = balance of trade + invisible balance = −150 + (−130) = −$280 m (deficit). Loans are capital account items, so they are left out.
Loans are capital flows, not current account items.