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Questions on Profile Three (Part II)
Yvonne
Harvey, Contributor
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| Final
of the 1,500 metres open at the
Youngster Goldsmith hurdles &
field events classic at the Stadium
East complex, on Saturday, February
4. - Andrew Smith Photo |
I
SINCERELY hope that you have had a pleasant
week so far. Are you ready to work on
this week's question? Good. Please try
to answer the question for yourself
before looking at my discussion and
guideline answer.
This
week's question on profile three is
taken from CXC past paper, May/June
2005, general, question 9. The question,
reproduced below, surrounds the topic
of international trade and balance of
payments:
The
following information was taken from
the final accounts of Tropicalo, a
country in the Caribee Isles. The
figures are quoted in US ($M).
| |
$US |
| Visible
trade |
|
| Exports |
24
000 |
| Imports |
26
000 |
|
Invisible
(net)
|
|
|
Exports
|
20
000 |
|
Imports
|
15
000 |
(a)
(i) Differentiate between a country's
terms of trade and its balance of
trade. (3 mks)
(ii)
Calculate Tropicalo's balance of trade
using the figures given above. (2
mks)
(b)
Calculate Tropicalo's current account
balance using the figures given above.
(3 mks)
You are not required to explain the
calculations in (a) (ii) and (b).
(c)
Identify two ways in which a country
may have a surplus on its current
account. (4 mks)
(d)
(i) Explain what is meant by 'balance
of payment'. (2 mks)
(ii)
Discuss three ways by which a country
would be able to finance the deficit
in its balance of payments. (6
mks)
Total
20 marks
DISCUSSION
AND GUIDELINE ANSWER
(a)
(i) A country's terms of trade refers
to the rate at which its goods and
services exchange for the goods and
services of another country. It is
calculated as:
Index
of export prices x 100
Index
of import prices
Whereas,
a country's balance of trade is the
difference between the country's imports
and exports of goods only. To properly
differentiate between the two terms,
the candidate should use terms such
as 'on the other hand', 'while', 'whereas',
etc.
(ii)
The balance of trade in this case
is:
|
24,000
-
26,000
|
|
|
-2,000
|
US
($M) |
| (minus
2,000 US($M) ) |
(b)
The current account balance takes
into consideration the visible trade
balance and the invisible trade balance.
From (a) (ii) we found the visible
trade balance (balance of trade) to
be minus 2,000 US ($M). The invisible
trade balance is plus 5,000 US ($M).
This is the difference between invisible
exports and invisible imports. The
current account balance is plus 3,000
US ($M).
- (c)
Exporting more goods and services
than it imports
-
Import less than it exports
- If
the positive visible balance exceeds
the negative invisible balance
(d)
(i) A country's balance of payments
is its annual record of trading with
other countries in terms of income
from exports and expenditure for imports.
(ii)
To finance a deficit is different
from correcting the deficit. To finance
the deficit, the country must find
ways to make the balance of payments
balance by covering the deficit. This
includes:
-
Importing the deficit amount on
credit
-
Loans from other countries
- Loans
from international financial
institutions e.g., International
Monetary
Fund and the World Bank.
-
Debit the foreign reserves account
-
Grants from other countries
-
Sell gold reserves, etc.
Any
short-term solution which results
in the amount of money to cover the
deficit, if properly discussed, will
earn two marks each.
The
profile three question for next week,
will be based on government's role
in protecting consumers and its role
in ensuring that businesses protect
the environment. You may find it useful
to revise the entire section on the
role of government. See you next week.
*
Yvonne Harvey teaches at Glenmuir
High School.
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