IGCSE Development Studies: Specimen Questions with Answers 53 - 54 of 98

Explanation

The balance of trade is the difference between the monetary value of exports and imports in an economy over a certain period. It is one of the key indicators of economy. It deals with the exports and imports of visible items only and considers only merchandise exports and imports only.

Importance of Balance of Trade Are

• It shows how a country competes in a global market place
• It determines the health of economy and its relationship with the rest of the world.
• It includes physical goods and intangible services.
• Important piece of understanding the global puzzle of international trade.

Explanation

Two Types of Foreign Exchange Rate System Are

• Fixed exchange rate: Fixed exchange rate is the standard exchange rate set by the monetary authorities for one or more currencies. It provides stability that helps to control inflation and keeps the unit labor cost low. There are chances of less speculation if fixed exchange rate is prevailing in the market.
• Floating Exchange rate: Under the floating exchange rate, factors of supply and demand decide the value of currency. It gives freedom to set policy interest rates to meet the domestic objectives. It may also help to prevent imported inflation.