Examkin

Question

Difficulty: MediumBalance of Trade and Structure of Balance of Payments

A West African nation records the following international transactions during a financial year:

Transaction ItemValue ($ Million)
Export of agricultural produce850
Import of capital machinery920
Earnings from foreign tourism140
Freight fees paid to foreign shipping firms60
Net unrequited transfers received90

Based on the table, calculate the country's Current Account Balance in millions of US dollars ($ million).

Answer: 100 million USD

Answer

The Current Account Balance is $100 million.
The Current Account Balance comprises the visible trade balance (merchandise exports minus merchandise imports), invisible trade balance (service receipts minus service payments), and net unrequited transfers. Here, Visible Balance = 850m−850m - 920m = -70m.NetInvisibleBalance=70m. Net Invisible Balance = 140m - 60m=+60m = + 80m. Net Unrequited Transfers = +90m.Addingthesetogetheryields−90m. Adding these together yields - 70m + 80m+80m + 90m = $100m surplus.

Step-by-Step Solution

1
Calculate the Balance of Visible Trade (Merchandise Trade)
850 million−850 \text{ million} - 920 \text{ million} = -70 million70 \text{ million}
Visible trade balance is calculated as visible exports minus visible imports.
2
Calculate the Net Invisible Balance (Services)
140 million−140 \text{ million} - 60 \text{ million} = +80 million80 \text{ million}
Invisible balance accounts for service inflows (tourism receipts) minus service outflows (freight payments).
3
Sum all components of the current account
-70 million+70 \text{ million} + 80 \text{ million} + 90 million=90 \text{ million} = 100 \text{ million}$
The Current Account Balance is the sum of the visible trade balance, net invisible trade balance, and net unrequited transfers.

Key Concept

Structure of the Current Account in the Balance of Payments
Rate this question

Topics

Balance of Trade and Structure of Balance of Payments

More questions from this topic