1
2 marks
Define the term foreign direct investment (FDI) indicated in bold in the text (Text D, paragraph 1) (opens in a new tab).
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Balance of Payments (DP IB Economics: SL): Exam Questions
58 mins19 questions
2
2 marks
Case Study
Text B, Paragraph 2
Policymakers from the Bank of Thailand (BOT) and currency experts explain that the strength of the Baht is attributed to domestic factors. Thailand possesses robust economic fundamentals, including a current account surplus, substantial foreign reserves, and a central bank that is internationally trusted due to a sensible approach of maintaining relatively high central bank rates. These factors attract capital inflows, as the Baht is considered a secure currency compared to other emerging market currencies due to its stability. Consequently, it is expected that the Baht will either maintain its value or experience further appreciation, leading to further increases in speculative capital inflows and creating upward pressure on the currency.
Define the term current account surplus indicated in bold (Text B, Paragraph 2).
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3
2 marks
Case Study
Text A, Paragraph 4
On the international stage, economists have said that the president must put his efforts into improving export competitiveness by making investments in education and training. Protectionism and intervention are also increasing as policymakers look to reduce imports, manage markets, and promote domestic industries, which has helped to turn Indonesia’s current account deficit to a surplus. However, with a strong export base specialising in coal, gold, and palm oil, the President has been warned not to damage relationships with key trading partners by limiting imports.
Define the term current account deficit indicated in bold (Text A, paragraph 4).
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4
2 marks
Case Study
Table 3: Cambodian trade balance in goods (US$ billions)
Year | Trade Balance |
2017 | -3.01 |
2018 | -4.79 |
2019 | -5.45 |
2020 | -1.4 |
2021 | -9.27 |
2022 | -7.32 |
Using information from Table 3, calculate the average trade balance in goods for Cambodia over the time period 2017-2022.
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5
2 marks
Case Study
Text C, Paragraph 2
Several emerging markets, particularly in Latin America, have attracted substantial interest in portfolio investment from global investors. This trend has raised questions about the stability of capital flows and their effect on local financial markets.
Define the term portfolio investment as indicated in bold (Text C, Paragraph 2).
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6
2 marks
Case Study
Text E, Paragraph 2
Greece has faced ongoing challenges due to its current account deficit, prompting several policy debates within the government. These discussions are centred on addressing potential long-term consequences for the economy and financial stability.
Outline one potential impact of persistent current account deficits as found in (Text E, Paragraph 2).
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7
2 marks
Case Study
Text C, Paragraph 3
The Ministry of Finance in Thailand is conducting an economic review and exploring the relevance of the Marshall-Lerner condition in shaping future trade policies. The outcome of these reviews is expected to inform adjustments to exchange rate policies.
Define the term Marshall-Lerner condition as indicated in bold (Text C, Paragraph 3).
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8
2 marks
Case Study
Text E, Paragraph 3
In the United Kingdom, economists are analysing the recent depreciation of the pound in light of the J-Curve effect. These findings may help inform decisions on how to manage future exchange rate fluctuations and their impact on the economy.
Define the term J-Curve effect as indicated in bold (Text E, Paragraph 3).
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9
2 marks
Define the term current account indicated in bold in the text (Text B, paragraph 2) (opens in a new tab)
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1
4 marks
Case Study
Extract C, Paragraph 2
Singapore's external economic relationships have evolved significantly over the past year. The country's financial markets have attracted substantial overseas investment, while its port facilities continue to generate significant service income. Government statistics show various international monetary flows, including corporate profit transfers and development assistance payments.
Explain the difference between the current account and the financial account of Singapore's balance of payments.
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2
4 marks
Extract A, Paragraph 3
Case Study
Poland's international economic activity includes various government transactions with other nations. Recent data shows movements in development aid, intellectual property payments, and migrant remittances. The central bank monitors these flows to understand their impact on the nation's external position.
Explain two components of Poland's current account.
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3
4 marks
Case Study
Extract A, Paragraph 2
Bangladesh's textile industry has seen changing international trade patterns over the past year. The central bank reports significant movements in the domestic currency value, while manufacturers note shifts in their export competitiveness. Industry analysts are studying how these currency changes affect trade flows.
Using an AD/AS diagram, explain how a depreciation in Bangladesh's exchange rate affects its current account balance and economic growth.
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4
4 marks
Case Study
Extract C, Paragraph 3
Morocco's financial sector has experienced changing investment patterns as global market conditions evolve. International investors respond to relative returns between countries, while domestic firms seek overseas funding opportunities. These capital flows influence the dirham's external value.
Explain two ways the financial account affects Morocco's exchange rate.
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5
4 marks
Case Study
Extract E, Paragraph 4
The Mexican economy has recorded current account deficits for five consecutive years. The peso has shown downward pressure in currency markets, while government borrowing costs have increased. International rating agencies are reviewing Mexico's credit status as external debt levels rise.
Explain two implications of Mexico's persistent current account deficit.
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6
4 marks
Case Study
Extract A, Paragraph 2
Ecuador's finance ministry is considering different policy responses to address its widening current account deficit. Officials debate whether to let market forces adjust naturally or to implement specific measures. Manufacturing associations argue for direct intervention to protect domestic industries.
Explain the difference between expenditure switching and expenditure reducing policies for tackling Ecuador's current account deficit.
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7
4 marks
Case Study
Extract C, Paragraph 2
Uganda's currency has depreciated by 15% against its major trading partners. Initial trade figures show the trade balance has changed significantly, though the central bank projects eventual improvements. Local manufacturers are adjusting their international pricing strategies, while importers report changing purchase patterns.
Using an appropriate diagram, explain the impact on Uganda's trade balance following currency depreciation.
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8
4 marks
Case Study
Extract B, Paragraph 1
Bolivia's mining exports have faced significant price changes in international markets following its currency depreciation. While export volumes remain stable, import costs have changed substantially. Economic analysts debate the timing of trade balance improvements.
Explain two reasons why there might be a time lag between currency depreciation and trade balance improvement in Bolivia.
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9
4 marks
Extract A, Paragraph 2
Case Study
South Korea's manufacturing sector has generated consistent trade surpluses over the past five years. Domestic firms report strong profit growth, while new investment in production capacity continues to expand. However, some economists express concern about the economy's increasing reliance on export markets.
Explain two implications of South Korea's persistent current account surplus.
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10
4 marks
Using an exchange rate diagram, explain how an improvement in Chile’s current account balance may influence the value of the peso (Text B, paragraph 2) (opens in a new tab).
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