Economics Grade 12 Questions and AnswersThe Foreign Exchange Market and the Balance of Payment Accounts Economics Grade 12...

The Foreign Exchange Market and the Balance of Payment Accounts Economics Grade 12 Questions and Answers

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.
act 1Figure 4.2 International trade

  1. What does graph 1 depict? Supply a reason for your answer. (2)
  2. Define the term balance of trade. (3)
  3. Does the balance of trade in 2008 indicate a positive or a negative balance? (2)
  4. Estimate the balance of trade for 2008. (4)
  5. What effect did the closing of textile factories in South Africa have on the balance of trade? (3)
  6. Which economic trend in 2009 contributed to the decline in imports and exports? (2)
    [16]
Answers to activity 1

  1. It depicts the difference between the imports and exports. (2)
  2. It is the value of exports minus the value of imports.(3)
  3. Negative balance (2)
  4. Approximately 600 000 – 700 000 = –100 000 (2)
  5. A negative effect3 because there was an increase in imports (3)
  6. Global recession (2)
    [16] 

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)216241
Financial Account:
Direct investment (net)35 708 B
Portfolio investment (net)93 764–16 345
Other investment (net)–16 25329 561
Balance on financial account A45 889
Unrecorded transactions66485 359
Change in gross gold and other foreign reserves–24 289107 194

Table 4.2 Balance of payments for 2009–2011

  1. Define the concept balance of payments. (2)
  2. Calculate the missing figures in A and B. (4)
  3. What does ‘net figures’ indicate in the financial account? (2)
  4. Give TWO examples of income receipts earned by South African residents. (4)
  5. Briefly explain how balance of payments disequilibria can be corrected. (6)
    [18]
Answers to activity 2

  1. This is a systematic record of all transactions between one country, e.g. South Africa and all other countries in the world.(2)
  2. A = R113 219 million B = R32 673 million (4)
  3. Money that enters the country is offset against money that leaves the country.  (2)
  4. 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.
      [18]

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