2.5 Study the data in the following table and answer the questions below:
Balance of Payments RM
Goods exports 1 460 664
B 101 493
Goods imports 1 613 775
Trade balance -51 618
Service receipts 287 484
Income receipts 147 024
Payment for services 296 465
Income payments 297 573
Current transfers -50 230
Current Account Balance -261 378
Net direct investment -68 448
Net portfolio investment 83 021
Net other investment -185 213
Unrecorded transactions 48 056
Change in net gold and other foreign exchange reserves ?2.5.2 Calculate the financial account balance and comment on your answer. Show your 
calculations.
(5)
Comment:
2.5.3 Calculate the change in net gold and other foreign exchange reserves. Hint: use the 
necessary account balance totals to simplify the calculation. Show your calculations.
(5)
2.6 Discuss TWO reasons why countries trade with each other.
(6)

Let's work through the calculations and answer the questions based on the provided data.

---

### 2.5.2 **Financial Account Balance Calculation:**

The financial account balance is the sum of all financial flows into and out of the country. It includes net direct investment, net portfolio investment, net other investment, and unrecorded transactions. To calculate the financial account balance:

\[
\text{Financial Account Balance} = \text{Net Direct Investment} + \text{Net Portfolio Investment} + \text{Net Other Investment} + \text{Unrecorded Transactions}
\]

Using the values from the table:

- **Net Direct Investment** = -68 448
- **Net Portfolio Investment** = 83 021
- **Net Other Investment** = -185 213
- **Unrecorded Transactions** = 48 056

Now, sum these up:

\[
\text{Financial Account Balance} = -68 448 + 83 021 + (-185 213) + 48 056
\]
\[
\text{Financial Account Balance} = -122 584
\]

#### **Comment:**
The financial account balance is **-122,584**. This negative balance indicates that more financial resources are flowing out of the country than flowing in. It reflects a net outflow of investments and financial transfers, meaning the country is investing more abroad or repaying foreign debts than it is receiving in foreign investments.

---

### 2.5.3 **Change in Net Gold and Other Foreign Exchange Reserves:**

To calculate the change in net gold and foreign exchange reserves, we use the formula:

\[
\text{Change in Reserves} = \text{Current Account Balance} + \text{Financial Account Balance}
\]

Given:
- **Current Account Balance** = -261 378
- **Financial Account Balance** = -122 584 (from the previous calculation)

Substitute the values into the equation:

\[
\text{Change in Reserves} = -261 378 + (-122 584)
\]
\[
\text{Change in Reserves} = -383 962
\]

#### **Comment:**
The change in net gold and foreign exchange reserves is **-383,962**. This large negative value suggests a significant decrease in the country's foreign reserves, possibly due to covering the current account deficit or managing external financial obligations.

---

### 2.6 **Two Reasons Why Countries Trade with Each Other:**

1. **Comparative Advantage:**
   Countries trade with each other because of comparative advantage, where one country can produce a good or service at a lower opportunity cost than another. This allows countries to specialize in the production of goods they are more efficient at, while trading for those they are less efficient in producing. By doing so, both trading partners can benefit and achieve higher levels of production and consumption.

2. **Access to Resources:**
   Countries often trade to access resources that are not available domestically or are scarce. For example, a country with limited oil reserves may import oil from countries that have it in abundance. This ensures that countries can meet their consumption needs, despite limitations in their own production capacities.

---

Would you like further details on any of these points? 

Here are some questions that expand on this information:
1. What are the components of the current account in the balance of payments?
2. How do financial flows affect the overall balance of payments?
3. What might cause a significant change in a country's foreign exchange reserves?
4. How does the trade balance impact the current account balance?
5. Can a country have a positive financial account balance and a negative current account balance simultaneously?

**Tip:** The financial account balance shows investment flows; a negative balance indicates the country is a net investor abroad, while a positive balance means it is receiving more foreign investments.

2.5 Study the data in the following table and answer the questions below:
Balance of Payments RM
Goods exports 1 460 664
B 101 493
Goods imports 1 613 775
Trade balance -51 618
Service receipts 287 484
Income receipts 147 024
Payment for services 296 465
Income payments 297 573
Current transfers -50 230
Current Account Balance -261 378
Net direct investment -68 448
Net portfolio investment 83 021
Net other investment -185 213
Unrecorded transactions 48 056
Change in net gold and other foreign exchange reserves ?
2.5.2 Calculate the financial account balance and comment on your answer. Show your calculations.
2.5.3 Calculate the change in net gold and other foreign exchange reserves. Hint: use the necessary account balance totals to simplify the calculation. Show your calculations.
2.6 Discuss TWO reasons why countries trade with each other.

Calculate the financial account balance and the change in net gold and foreign exchange reserves using a detailed step-by-step solution based on the balance of payments data. Understand key concepts such as financial account balance, current account balance, and investment flows. Suitable for undergraduate students studying economics or finance.

Math Problem Statement

Solution

Ask a new question for Free

By Image

Math Problem Analysis

Mathematical Concepts

Formulas

Theorems

Suitable Grade Level

Related Recommendation