WAEC Standard for Answering Balance of Payment.
The table below shows the composition of exports and imports of a hypothetical country.
Use the information in the table to answer the questions that follow.
Exports | Amount $ | Imports | Amount $ |
| Crude oil | 120,000,000 | Rice and flour | 140,000,000 |
| Groundnuts | 40,000,000 | Petroleum product | 80,000,000 |
| Tourism | 45,000,000 | Vehicles and accessories | 50,000,000 |
| Shipping & Insurance | 60,000,000 | Banking services | 60,000,000 |
| Bauxite | 80,000,000 | Freight and insurance | 40,000,000 |
- Calculate the value of visible exports.
- Calculate the balance of trade for the country.
- List the items of invisible exports and imports.
- Calculate the current account balance of the country.
- Is the country developed or developing? Give one reason for your answer.
The question required the candidates to calculate the value of visible
exports, balance of trade, current account balance of a country, list
the items of invisible exports or imports of a country and determine if
the country is developed or developing. Most candidates who attempted
this question were able to calculate the value of visible exports and
the current account balance but were unable to calculate the balance of
trade and list the items of invisible export as they could not
classify ‘bauxite’ as either visible export or import, hence they could
not obtain the maximum mark.
The candidates were expected to provide the following answers to score higher marks.
(a) Value of visible exports = crude oil + groundnuts + bauxite
= $120,000,000 + $ 40,000,000 + $ 80,000,000 = $ 240,000,000
(b) Balance of trade = total value of visible exports – total value of visible imports
Visible exports = $240,000,000
Visible imports = rice and flour + petroleum product + vehicles and
accessories
= $ 140,000,000 + $ 80,000,000 + $ 50,000,000
= $ 270,000,000
Balance of trade = $ 240,000,000 – $ 270,000,000
= – $ 30,000,000
(c) Invisible exports include tourism and shipping & insurance.
Invisible imports include banking services and freight & insurance.
(d) Current account balance = value of total exports – value of total imports
= ($ 345,000,000) – ($ 370,000,0000)
= – $ 25,000,000
(e) The country is a developing one. This is because:
(i) its exports are made up mainly of unprocessed primary products.
(ii) its imports are made up mainly of finished goods.
(iii) the value of imports exceeds exports.
Question
The trade figures for a West African country in a given year are outlined below.
Study the table and use the information given to answer the questions that follow:
| ITEM | AMOUNT ($ m) |
| Export of cocoa Export of crude oil Import of motor vehicles Import of plant and machinery Shipping services on exports Shipping services on imports Insurance paid on exports Insurance paid on imports Expenditure on foreign tours Expenditure by foreign tourists Grants to other countries Grants received Loans from abroad Foreign private investment Investment abroad | 200 950 250 450 220 180 45 60 140 80 70 300 550 200 350 |
Calculate:
(a) balance of trade;
(b) invisible balance;
(c) current account balance;
(d) capital account balance;
(e) balance of payments.
The question required candidates to calculate the balance of trade, invisible balance, current account balance, capital account balance and balance of payments of a West African country. Most of the candidates who attempted this question could compute the value of balance of trade in the (a) part of the question but only few of them could distinguish between invisible balance and current account balance or capital account balance and balance of payments. Candidates scored relatively low marks in this question.
About The Author
BALANCE OF TRADE: the difference in value over a period of time between a country’s imports and exports of goods and services, usually expressed in the unit of currency of a particular country or economic union (e.g., dollars for the United States, pounds sterling for the United Kingdom, or euros for the European Union). The balance of trade is part of a larger economic unit, the BALANCE OF PAYMENTS (the sum total of all economic transactions between one country and its trading partners around the world), which includes capital movements (money flowing to a country paying high interest rates of return), loan repayment, expenditures by tourists, freight and insurance charges, and other payments ..