An economy's balance of payments accounts for a financial year record the following transactions (in millions of US dollars): | Transaction Item | Value ($ million) | |---|---| | Merchandise exports | 550 | | Merchandise imports | 700 | | Net invisible earnings | 90 | | Net current transfers | -20 |

An economy's balance of payments accounts for a financial year record the following transa… — JAMB UTME

An economy's balance of payments accounts for a financial year record the following transactions (in millions of US dollars):

Transaction Item	Value ($ million)
Merchandise exports	550
Merchandise imports	700
Net invisible earnings	90
Net current transfers	-20
Net capital account flows	-40

Calculate the overall Balance of Payments position in millions of US dollars (use a negative sign to indicate a deficit).

Answer: -120 million USD

Answer

-120 million USD (representing an overall Balance of Payments deficit of $120 million)

The overall Balance of Payments is calculated by summing the Current Account Balance and the Capital Account Balance. First, the Balance of Visible Trade is calculated as merchandise exports minus merchandise imports:

550 million -

700 million = -

150 million. Next, the Current Account Balance is determined by adding net invisible earnings and net current transfers to the visible balance: -

150 million +

90 million + (-

20 million) = -

80 million. Finally, adding the net capital account flows (-

40 million) results in an overall balance of -

120 million, which indicates a Balance of Payments deficit of

120 million.

Step-by-Step Solution

Calculate the Balance of Visible Trade (Trade Balance)

-$150 million

The trade balance equals visible exports minus visible imports (

550 million -

700 million).

Calculate the Current Account Balance

-$80 million

The current account balance combines the visible trade balance, net invisible earnings, and net current transfers (-

150 million +

90 million - $20 million).

Calculate the Overall Balance of Payments position

-$120 million

The overall balance is the sum of the current account balance and the capital account balance (-

80 million + (-

40 million)).

Key Concept

Calculation of overall Balance of Payments position from current account and capital account sub-balances

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