7 Referring to UK trade figures from recent years explain the composition of
the UK balance of payment.
Balance of payment:
Balance of payment is the name given to the record of transactions between the
residents of the country and the rest of the world over a period of time.
Structure of Balance of Payment (UK)
The Current Account concerns that income and expenditure and is divided into four
categories include that Trade in Goods, Trade in Services, Income and Current
Transfers.
The Capital Account: tracking Capital flows into and out of a country. Important part
of the capital account is non-productive capital transfers and acquisition of
non-financial assets to buy / sell.
The Financial Account: dealing with flow of direct portfolio and investment and
reserve assets and the International Investment Position
Net Errors and Omissions: it does not have all the accurate figures to hand.
8 What are the general trends in UK trade over the last 30 years, you should
refer to the current balance over this period in your response.
In generally, Trade in goods has a trend is that has been in a deficit state at the last 30
year. Such as, The UK has been a lot of deficit at the traditional trade in goods. That is
to say, Britain in the past 30 years, Trade in goods exports is increasing, but the Trade
in goods imports greater than exports, thus giving rise to the deficit. At 2009, it occurs
that the largest trade deficit. 2011 China's commodity exports up by 2.5%, the Trade
deficits expanded.
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In general, Trade in services has a trend is that upward movement at the last 30 year. For example, The UK has a slowly increasing from 1984 to 1994, and it is slowly. However, after 2000, the service rate is very huge trade surplus. At the 2006, Trade in services of the UK has a huge immediate significance increase form 1990. ( ) . 2010 China appeared $ 4.1 billion Surplus in trade in services
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How is the balance of payments affected by exchange rates? You may provide a basic theoretical example or recent case to illustrate this.
Due to the currency weakens (devalues), therefore, the exports will become cheaper. On the contrary, the country has to pay more cost to imports the products and services. The products and services of the country is cheaper than the other countries’, therefore, it will lead to the country will increase export volume. This is come to a surplus of international balance of payments. However, there are some specific country has the fixed needs for the goods and services which will reduce trade and appears current balance deficit.
At the current appreciation, then the country will import many cheap goods and services rather than export. This way will lead to the international balance of payments deficit. On the other hand, there is a specific fact when the country has a fixed need for the goods and services. Then the values of export will increase which lead to the current account balance surplus.
10. Identify three advantages and three disadvantages for each of two of the following:
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The advantage of fixed exchange rate At first, fixed exchange rate can reduce uncertainty for long term contracting and investing.
On the other hand, fixed exchange rate cans promote international trade and investment.
At last, fixed exchange rate can imposes discipline to avoid inflation. For example, a country’s Central Bank can control the money supply, so it will adjust the amount of money in circulation to avoid the inflation.
However, fixed exchange rates have disadvantages as well:
At first, a fixed exchange rate fails to identify the degree of comparative advantage or disadvantage of the nation and may lead to inefficient allocation of resources throughout the world.
What’s more, there exists the possibility of policy delays and mistakes in achieving external balance.
The last, Speculators can place immense pressure upon the fixed rates.
Floating exchange rates
Floating exchange rates have these main advantages:
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At first, the country monetary policy need not keep official reserves to support deficits because the market will simply fall to correct the disequilibrium.
What’s more, the price of the currency moves up or down in accordance to market supply and demand.
The last, floating exchange rates will be not over-valued or under-valued as according to willingness to buy and sell.
Floating exchange rates also have disadvantages:
At first, the volatility and instability will occurs that the growth or even destroy international trade.
In addition, floating exchange rates is difficult for long term trade and contracts.
The last, floating may make governments think they need to do nothing to cope with inflation.
11 outline three effect on individual and three effects on businesses for each of two exchange rate regimes selected in question 10.
For the floating exchange rates:
There are some effects on individuals:
The first one is that the costs of buying imported products can vary; if the currency 4
exchange rate rises, the more people are willing to go abroad, but if the currency exchange rate declines, less people want to go overseas.
On the other hand, more individuals want to take speculations;
What’s more, the costs of changing currencies may be greater than under the fixed exchange rate.
There are some effects on business:
At first, the business may face great uncertainty for its long-term contracts and investments;
Besides, the ‘Hot Money’ could bring great damages to the businesses;
At the same time, it will influence a company’s profit. (Because the quote from the final payment under the order to have time interval, although the period in which the exchange rate changes, but only subject to the payment of a specific period of time in exchange rates. Margins may be reduced)
The effects of the fixed exchange rates
In terms of the individuals:
Firstly, it is quite stable and gives the consumers great certainty and confidence.
Moreover, if the currency exchange rate rises, it will lead to the decline of the domestic price level, so the imported goods will be cheaper for consumers; if the currency exchange rate declines, it will lead to the addition of the domestic price level.
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In the end, if the currency exchange rate rises, it will benefit import rather than export, therefore when the economy is depressed with its unemployment; many governments sometimes decline its exchange rate in order to add the national income and employment.
In terms of the business:
At the first, it decreases great uncertainty; therefore, it’s good for businesses’ long-term investment or plan.
What’s more, if the currency exchange rate increases, it will benefit import rather than export; the businesses can get more imported materials at a cheaper price;
At last, if the currency exchange rate declines, it will benefit export rather than import; the businesses can sell more goods and earn great profits.
12 explain two characteristics of either Newly industrialized Countries, or Less Developed Countries.
Newly industrialized Countries
At first, Newly industrialized Countries establish a education and training are that usually very modern and make great use of new technology as do their Health Establishments. That is to say, the way can more save time and more reasonable to education and training.
On the other hand, Newly industrialized Countries are very good at innovating and introducing new methods and management techniques. The way can meet some customers’ needs for innovation and technology.
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13. Using specific examples provide an analysis of one issue facing NICs, and one issue facing LDCs.
In the NICs there are many question of indebtedness, because taking a new road of industrialization must be large industrial claim, the pre-investment will be very great. So the country in order to change economy will spend a lot of money, easily lead to debt crises.
In the LDCs exist educational problems, many children can not accept formal education, because these LDCs have not enough resources and facilities, on the other side, the parents don’t have the sense of importance of education, which causes the younger generation is same with the last generation, and then the development of the country would be stopped.
14. Explain the impact of transnational firms on NICs or LDCs.
The transnational firms in LDCs could increase income, bring more jobs and economic growth and so on. For example, Inter invests 0.375 billion dollar to build a factory in Chengdu of China, which can offer around 3000 jobs. Inter can attract relevant enterprises come to Chengdu to develop the IT industry of Chengdu. And Inter Company operate internationally with large volume of importing and exporting, which can promote the development of delivery industry.
Besides, transnational firms some project investment can help less developed country to develop industries, education and health care industry.
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Reference:
(available at: 2012) accessed 2014/5/1
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Appendix: 9