The Foreign Exchange Market and the Balance of Payment Accounts. The market balance of payments refers to the balance of supply and demand for a country’s currency in the foreign-exchange market at a given rate of exchange. If the exchange rate is fixed, the market balance of payments would be in balance only by chance
THE FOREIGN EXCHANGE MARKET AND THE BALANCE OF PAYMENT ACCOUNTS QUESTIONS AND ANSWERS
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
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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
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