THE FOREIGN EXCHANGE MARKET AND THE BALANCE OF PAYMENT ACCOUNTS QUESTIONS AND ANSWERS

Monday, 23 August 2021 13:46

Activity 1
Study Figure 4.2 concerning international trade and answer the questions that follow.
Figure 4.2 International trade

What does graph 1 depict? Supply a reason for your answer. (2)
Define the term balance of trade. (3)
Does the balance of trade in 2008 indicate a positive or a negative balance? (2)
Estimate the balance of trade for 2008. (4)
What effect did the closing of textile factories in South Africa have on the balance of trade? (3)
Which economic trend in 2009 contributed to the decline in imports and exports? (2)
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Answers to activity 1

Activity 2
Study Table 4.2 which shows the balance of payments extract and answer the questions that follow:

BALANCE OF PAYMENT – ANNUAL FIGURES – R millions	2009	2011
Balance of current account	–97 062	–98 785
Capital transfer account (net receipts)	216	241
Financial Account:
Direct investment (net)	35 708	B
Portfolio investment (net)	93 764	–16 345
Other investment (net)	–16 253	29 561
Balance on financial account	A	45 889
Unrecorded transactions	664	85 359
Change in gross gold and other foreign reserves	–24 289	107 194

Table 4.2 Balance of payments for 2009–2011

Define the concept balance of payments. (2)
Calculate the missing figures in A and B. (4)
What does ‘net figures’ indicate in the financial account? (2)
Give TWO examples of income receipts earned by South African residents. (4)
Briefly explain how balance of payments disequilibria can be corrected. (6)
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Answers to activity 2

This is a systematic record of all transactions between one country, e.g. South Africa and all other countries in the world.(2)
A = R113 219 million B = R32 673 million (4)
Money that enters the country is offset against money that leaves the country. (2)
Income earned by South Africans working in other countries, e.g. a South African teaching in Dubai.
When South Africans receive dividends on the shares they hold in foreign companies. (4)
- l Borrowing money from the IMF
- Policies of export promotion and import substitution
- Increase in aggregate supply will reduce prices. Exports are promoted through cheaper prices.
- Higher interest rates help to decrease spending on imports.
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Last modified on Friday, 03 September 2021 07:15