Introduction

Financial account: Activities

1 In the financial account ,the portfolio investment (purchases of financial assets) is recorded. This figure is a flow figure as it does not reflect the level of assets or liabilities.

Correct. The statement is indeed true.

All items in the balance of payments are flow concepts. It occurs over a period of time.

Incorrect. The statement is true.

All items in the balance of payments are flow concepts. It occurs over a period of time.

2 Direct investment includes transactions related to the acquisition of share capital in foreign countries by establishing new businesses, or through mergers and takeovers.

Correct. The statement is indeed true.

It is the definition of direct investment.

Incorrect. The statement is true.

It is the definition of direct investment.

3 Interest payments on foreign loans are recorded in the financial account of the balance of payments.

Incorrect. The statement is false.

Interest payments are recorded in the current account under the item income payments.

Correct. The statement is indeed false.

Interest payments are recorded in the current account under the item income payments.

4 Which one of the following is not part of the financial account of the balance of payments?

Incorrect.

Direct investment is part of the financial account. It is income received that is not part of the financial account.

Correct.

Income received is part of the current account and not part of the financial account.

Incorrect.

Portfolio investment is part of the financial account. It is income received that is not part of the financial account.

Incorrect.

Financial derivatives are part of the financial account. It is income received that is not part of the financial account.

5 Which one of the following transactions will be recorded under net direct investment on the financial account of the balance of payments?

Incorrect.

The IMF loan is recorded as part of other investment in the financial account of the balance of payments.

Incorrect.

This transaction is recorded as part of direct portfolio investment in the financial account of the balance of payments and is a debit item.

Incorrect.

This transaction is recorded as part of income received in the current account of the balance of payments.

Correct.

This transaction is recorded as part of direct investment in the balance of payments and represents a liability.

6 For a transaction to be recorded as part of direct investment, the investor must obtain full control of the enterprise.

Incorrect. The statement is false.

The investor must have a lasting and meaningful relationship and a significant influence on the enterprise. It does not need to have full control.

Correct. The statement is indeed false.

The investor must have a lasting and meaningful relationship and a significant influence on the enterprise. It does not need to have full control.

7 If direct investment in foreign enterprises exceeds direct investment in domestic enterprises, net direct investment will be negative.

Correct. The statement is indeed true.

Direct investment in foreign enterprises is regarded as part of assets and represents an outflow (negative sign), whereas direct investment by foreigners is a liability and represents an inflow (positive sign). If the outflow (direct investment by South Africans) exceeds the inflow (direct investment by foreigners), then net direct investment is negative.

Incorrect. The statement is true.

Direct investment in foreign enterprises is regarded as part of assets and represents an outflow (negative sign), whereas direct investment by foreigners is a liability and represents an inflow (positive sign). If the outflow (direct investment by South Africans) exceeds the inflow (direct investment by foreigners), then net direct investment is negative.

8 If a British resident purchases 10 000 shares in Shoprite on the Johannesburg Stock Exchange, the transaction is recorded as a …

Incorrect.

It is recorded as portfolio investment and represents a liability (it is owed to a foreigner) and an inflow (foreign currency flows into South Africa).

Correct.

It is recorded as portfolio investment and represents a liability (it is owed to a foreigner) and an inflow (foreign currency flows into South Africa).

Incorrect.

It is recorded as portfolio investment and represents a liability (it is owed to a foreigner) and an inflow (foreign currency flows into South Africa).

Incorrect.

It is recorded as portfolio investment and represents a liability (it is owed to a foreigner) and an inflow (foreign currency flows into South Africa).

9 If portfolio investment by foreigners in South African assets exceeds portfolio investment by South Africans in foreign assets, net portfolio investment will be negative since the increase in liabilities is greater than the increase in assets.

Incorrect. The statement is false.

If portfolio investment by foreigners in South African assets exceeds portfolio investment by South Africans in foreign assets, net portfolio investment will be positive. The inflow of foreign currency exceeds the outflow of foreign currency.

Correct. The statement is indeed false.

If portfolio investment by foreigners in South African assets exceeds portfolio investment by South Africans in foreign assets, net portfolio investment will be positive. The inflow of foreign currency exceeds the outflow of foreign currency.

10 Reserve assets are those external assets that are readily available and include foreign exchange reserves.

Correct. The statement is indeed true.

Apart from foreign exchange, it also includes gold, SDRs and the country’s IMF reserve position.

Incorrect. The statement is true.

Apart from foreign exchange, it also includes gold, SDRs and the country’s IMF reserve position.

11 Transactions in the reserve account are called autonomous transactions.

Incorrect. The statement is false.

Transactions in the reserve account are called accommodating transactions.
Transactions in the current, capital transfer and financial accounts are called autonomous transactions.

Correct. The statement is indeed false.

Transactions in the reserve account are called accommodating transactions.
Transactions in the current, capital transfer and financial accounts are called autonomous transactions.

12 If the combined balance of the current account, financial account, capital transfer account and unrecorded transactions is in a surplus, then reserve assets will …

Correct.

A surplus implies an inflow of foreign currency and reserve assets increase.

Incorrect.

A surplus implies an inflow of foreign currency and reserve assets increase.

13 If exports increase, ceteris paribus, the reserve assets will …

Correct.

Exports imply an inflow of foreign currency and reserve assets increase.

Incorrect.

Exports imply an inflow of foreign currency and reserve assets increase.

14 If the surplus on the financial account (excluding reserve assets) is smaller than the deficit on the current account, then the reserve assets will …

Incorrect.

The inflow of foreign exchange is less than the inflow of foreign exchange and therefore the reserve assets decrease.

Correct.

The inflow of foreign exchange is less than the inflow of foreign exchange and therefore the reserve assets decrease.

15 If the South African Reserve Bank increases its holding of gold as an international reserve asset, this transaction is recorded as part of net gold exports.

Incorrect. The statement is false.

It is part of reserve assets.

Correct. The statement is indeed false.

It is part of reserve assets.

16 Unrecorded transactions ensure that the balance of payments balances.

Correct. The statement is true.

The unrecorded transactions arise due to errors and omissions that occur in compiling the individual components of the balance of payments and are the balancing item.

Incorrect. The statement is true.

The unrecorded transactions arise due to errors and omissions that occur in compiling the individual components of the balance of payments and are the balancing item.

Data questions

Questions 17 and 18 are based on the following information:

Item Value (R millions)
Merchandise exports, free on board 1 102
Merchandise imports, free on board 1 103
Net gold exports 66
Services receipts 210
Payments for services 215
Income receipts 81
Income payments 221
Current transfers (net receipts +) -38
Capital transfer account (net receipts +) 2
Net direct investment -71
Net portfolio investment 219
Net financial derivatives -4
Net other investment -8
Reserve assets -25

17 The balance on the financial account is …

R
million

Correct. The balance on the financial account is R111 million.

Financial account Value (R millions)
Net direct investment -71
Net portfolio investment 219
Net financial derivatives -4
Net other investment -8
Reserve assets -25
Balance on financial account 111

Incorrect. The balance on the financial account is R111 million.

Financial account Value (R millions)
Net direct investment -71
Net portfolio investment 219
Net financial derivatives -4
Net other investment -8
Reserve assets -25
Balance on financial account 111

18 Unrecorded transactions are …

R
million

Correct. It is R5 million.
Unrecorded transactions are the balancing item. See page 134 of the textbook.

Overall balance of payments Value (R millions)
Balance on current account -118
Capital transfer account (net receipts +) 2
Balance on financial account 111
Unrecorded transactions 5
Overall balance of payments 0

Incorrect. It is R5 million.
Unrecorded transactions are the balancing item. See page 134 of the textbook.

Overall balance of payments Value (R millions)
Balance on current account -118
Capital transfer account (net receipts +) 2
Balance on financial account 111
Unrecorded transactions 5
Overall balance of payments 0

South African data

19 For how many years in the period 2012 to 2019 were direct investments positive?

years

Correct. They were positive for the following four years: 2012, 2013, 2018 and 2019.

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Incorrect. They were positive for the following four years: 2012, 2013, 2018 and 2019.

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20 For how many years in the period 2012 to 2019 were portfolio investments positive?

years

Correct. They were positive for all the years (8) in the period 2012 to 2019.

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Incorrect. They were positive for all the years (8) in the period 2012 to 2019.

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21 How much foreign direct investment did the South African economy receive in 2018?

R
million

Correct. The inflow of foreign direct investment was R72 119 million.

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Incorrect. The inflow of foreign direct investment was R72 119 million.

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22 The reserve assets for South Africa have declined every year during the period 2012 to 2019.

Incorrect. The statement is false.

They have decreased every year except for 2015.

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Correct. The statement is indeed false.

They have decreased every year except for 2015.

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23 Both the balance on the financial account and the balance of the financial account excluding reserve assets were in a surplus every year during the period 2012 to 2015.

Correct. The statement is indeed true.

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Incorrect. The statement is true.

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