QUESTION 1 Which of the following statements is/are correct? The balance on the financial account of...

QUESTION 1

Which of the following statements is/are correct? The balance on the financial account of R105 668m in 2009 indicates…
(a) the value of the stock of the assets and liabilities.
(b) the net change in South Africa’s foreign assets and liabilities.
(c) that the flows of inward investment by foreigners exceeded the flows of outward investment by south African residents

QUESTION 2

Which of the following statements is/are correct?
(a) The value of net gold exports was higher in 2009 than in 2002.
(b) There is a declining trend in the relative contribution of gold exports to the balance of trade.
(c) In 1998 gold exports comprised nearly half of all merchandise exports

Solutions

Expert Solution

Answer 1

Balance of payment is a record of all the transactions between the residents of a country and the rest of the world taking place during a given period of time. It has three components: current account, capital account and financial account.

The financial account records the changes in international ownership of assets. It has two sub accounts: one which measures foreign assets owned by domestic residents and one which measures domestic assets owned by foreigners.

The balance on the financial account of R105668 m in 2009 indicates the net change in South Africa's foreign assets and liabilities as financial account records the increase and decrease in foreign assets and liabilities. The positive balance on the financial account shows that the flows of inward investment by foreigners exceeded the flows of outward investment by South African residents. This is so because when money flows in, it adds to the Balance of payment through the financial account. When there are inward investments, it increases the financial account balance and when there are outward flows, it decreases the financial account balance. Hence, a positive balance of financial account would mean net inflows of funds. (As positive balance is greater than negative balance, so net balance would be positive.)

So, statement b and c are correct.

Statement a is not correct because financial account does not record the value of the stock of all assets and liabilities. It only records the values of foreign assets and liabilities. But all assets and liabilities will also contain domestic assets and liabilities which are not a part of financial account.

So a is not correct, b and c are correct.

To solve question 2, more information is needed regarding the values of 2002 and 1998.

Rahul Sunny answered 2 months ago

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