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Difficulty: EasyForeign Trade Types and Balance of Payments

Which of the following international transactions is classified as an invisible export in a country's Balance of Payments account?

  1. Earnings received from freight services provided by a local shipping line to foreign firmsAnswer
  2. B
    Revenue generated from exporting cocoa beans to overseas buyers
  3. C
    Payment made to import industrial equipment from a foreign manufacturer
  4. D
    Expenditure incurred by resident citizens while vacationing in another country

Answer

Earnings received from freight services provided by a local shipping line to foreign firms
Invisible exports consist of services provided by domestic companies or individuals to non-residents that lead to an inflow of foreign currency. Providing shipping and freight services to foreign entities is an intangible service transaction that generates revenue from abroad.

Step-by-Step Solution

1
Distinguish between visible and invisible items in foreign trade accounting.
Visible items comprise physical merchandise (e.g., cocoa, machinery), whereas invisible items consist of services and intangible transactions (e.g., shipping, insurance, tourism).
The Balance of Payments current account separates merchandise trade from service entries.
2
Determine the monetary flow direction for export versus import transactions.
Exports generate foreign currency inflows to the home country, while imports result in monetary outflows.
An invisible export specifically occurs when domestic service providers earn income from non-resident clients.
3
Identify the transaction matching an inflow from commercial services.
Freight services supplied by a domestic maritime firm to foreign buyers represent an intangible service yielding revenue from abroad.
Service receipts represent invisible exports in the current account of the Balance of Payments.

Key Concept

Classification of visible and invisible trade items in the Balance of Payments
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Topics

Foreign Trade Types and Balance of Payments

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