The international monetary transactions for an open economy during a given fiscal year are summarized below: | Item | Amount ( Millions) | |---|---| | Merchandise Exports | 820 | | Merchandise Imports | 950 | | Shipping and Freight Services Paid to Foreign Companies | 45 | | Income Received from For

The international monetary transactions for an open economy during a given fiscal year are… — JAMB UTME

The international monetary transactions for an open economy during a given fiscal year are summarized below:

Item	Amount ($ Millions)
Merchandise Exports	$820
Merchandise Imports	$950
Shipping and Freight Services Paid to Foreign Companies	$45
Income Received from Foreign Tourism	$110
Interest Received on Overseas Investments	$35
Foreign Direct Investment Inflows	$250
Remittances Received from Citizens Abroad	$60

Based on the table above, what is the country's Current Account balance and the status of its Balance of Trade?

Current Account surplus of $30 million; Balance of Trade deficit of$ 130 millionAnswer
B
Current Account surplus of $280 million; Balance of Trade deficit of$ 130 million
C
Current Account deficit of $130 million; Balance of Trade surplus of$ 30 million
D
Current Account surplus of $235 million; Balance of Trade deficit of$ 85 million

Answer

Current Account surplus of

30 million; Balance of Trade deficit of

130 million

The correct answer accurately calculates the Balance of Trade as the difference between merchandise exports (

820m) and merchandise imports (

950m), yielding a deficit of

130m. It then combines this with net invisibles (

110m tourism +

35m interest +

60m remittances -

45m freight = +

160m) to arrive at a Current Account surplus of

30m. Foreign Direct Investment (

250m) is properly excluded as a financial account item.

Step-by-Step Solution

Calculate the Balance of Trade (Visible Trade Balance)

Balance of Trade = Merchandise Exports (

820m) - Merchandise Imports (

950m) = -

130 million (Deficit of

130 million).

Balance of Trade accounts exclusively for visible goods exported and imported.

Identify and sum the Net Invisibles and Unilateral Current Transfers

Net Invisibles = Foreign Tourism Receipts (+

110m) + Interest Received (+

35m) + Remittances Received (+

60m) - Freight Services Paid (-

45m) = +$160 million.

Services, investment income, and remittances are recorded under the invisible and secondary income components of the current account.

Filter out non-current account transactions

Foreign Direct Investment Inflows ($250 million) is classified under the Capital and Financial Account, so it must be excluded from the Current Account calculation.

Capital flows representing ownership of assets belong to the financial account, not the current account.

Calculate the Total Current Account Balance

Current Account Balance = Balance of Trade (-

130m) + Net Invisibles (+

160m) = +

30 million (Surplus of

30 million).

The Current Account balance combines the visible trade balance with net invisibles and net current transfers.

Key Concept

Structure of Balance of Payments: Distinguishing Current Account components (Visible Trade, Services, Primary Income, Secondary Income) from Capital and Financial Account components.

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