Question 4
(a) Differentiate between the following:
(i) bill of lading and consignment note;.
(ii) counter trade and trade by barter.
(b) Explain four ways to remedy an unfavourable balance of payment.
Observation
Most candidates who attempted this question could not differentiate between the terms. For the (b) part of the question, went on to explain the functions of international trade as against the ways to remedy an unfavourable balance of payment.
(a) Differences between:
(i) Bill of lading and consignment note
(ii) Counter trade and trade by barter
(b) Ways to Remedy an Unfavourable Balance Of Payment
- i. Restricting Imports: The country may restrict imports in order to reduce its citizens’ demand for imported goods and services. Such restrictions may take the form of total ban, quotas, and increased import duties.
ii. Increasing Exports: A country may resort to measures that would encourage its citizens to produce for export. Earnings from such exports would be used to offset its import bills.
iii. Exchange Control: The government of a country may introduce measures that would regulate the amount of foreign exchange available for importers.
iv. Devaluation: A country may reduce the official rate of exchange of her currency with other currencies. The effect of this is to make exports cheaper and imports expensive, thus increasing the demand for her exports.
v. Borrowing: A country may borrow from international organizations or foreign countries to solve its balance of payment problems.
vi. Sale of Gold Reserves/ Securities: A country may sell part of its gold reserves as well as other securities so as to finance its balance of payments deficit.
vii. Gift or Aid: A country may seek assistance from friendly countries and donor agencies to correct its adverse balance of payments.
viii. Drawing on foreign reserves: A country can make drawings on its external reserves to solve her balance of payment problems.
ix. Import substitution: A country may encourage domestic producers to produce close substitutes of imported products to discourage importation of such goods.
x. Policies that encourage foreign direct investment: The government can also make policies that encourage foreign nationals to invest in the country.