Balance of Payments and International Trade

What is meant by a depreciation in the foreign exchange rate?

• The government intervenes to reduce the exchange rate of the country’s currency.

• The rate of exchange of exports for imports for a country deteriorates.

• The rate of inflation in a country continues to rise.

• The value of a country’s currency falls on the international exchange market.

The table shows information from a country’s current account of its balance of payments.

What is the country’s current account balance?

• +$1 billion

• –$4 billion

• –$7 billion

• –$15 billion

The diagram shows the value of a country’s exports and imports of goods over five years.

Between which two years did the country have an increase in the value of imports and an improvement in its balance of trade in goods?

• 1 and 2

• 2 and 3

• 3 and 4

• 4 and 5

A country wishes to increase a current account surplus on the balance of payments.

Which action would it take?

• abolish an import quota

• increase import tariffs

• remove export subsidies

• tax export producers

What would not be included in the current account of the balance of payments?

• dividends earned from a firm in another country

• imports of TVs from another country

• purchase of a house in another country

• rents paid to owners of land in another country

What is most likely to discourage international specialisation and trade for an economy?

• decreasing labour supply

• decreasing transport costs

• increasing oil prices

• increasing trade barriers

Many low-income countries rely on multinational companies (MNCs) to provide economic development.

What is a disadvantage of this for the low-income country?

• Local firms close because MNCs are more efficient.

• New production techniques are introduced.

• The balance of payments may improve.

• The MNCs have to pay taxes on their profits.

Which government policy is most likely to improve a country’s balance of trade?

• a decrease in direct taxation

• a decrease in the exchange rate

• a decrease in the level of tariffs

• an increase in government expenditure

The table shows the tariffs imposed on imported tropical fruit in the European Union (EU) according to the degree of processing.

What might be the reason for this pattern of tariffs?

• to encourage imports of processed products into the EU

• to encourage tropical countries’ exports

• to help manufacturing industries in the EU

• to help tropical countries develop manufacturing industries

What is most likely to happen if South Korea builds a factory in Switzerland that becomes profitable?

• South Korea’s imports of goods will decrease.

• South Korea’s investment income will increase.

• Switzerland’s trade balance in goods will worsen.

• Switzerland’s trade balance in services will improve.