) Given below is information on all of the entries in Balance of Payments of a h
ID: 1116340 • Letter: #
Question
) Given below is information on all of the entries in Balance of Payments of a hypothetical developing country:
Commodity exports = $28 million
Debt service payments = $1 million
Remittances from abroad = $2 million
Commodity imports = $34 million
Private FDI inflow = $0.5 million
Investment income = $1 million
Based on this information, answer the following questions:
a. What is the value of current account balance? (2 points)
b. What is the value of capital account balance? (2 points)
c. What is the value of cash reserve account? ( 1 point )
Explanation / Answer
Current Account Balance = Commodity Exports - Commodity Imports + Remitances from Abroad
= 28 - 34 + 2 = - 4 million
Capital Account Balance = Investment Income + FDI Inflows - Debt Service Paymets = 1 + 0.5 - 1 = 0.5 million
Cash Reserve Account = Capital Account - Current Account = 0.5 - (-4) = 4.5 million
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