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4.3 How is international trade recorded and financed?

What students need to learn:

Students should be able to:
Additional Guidance Notes
Balance of Payments
Understand the different components of the Balance of Payments.
For example: the trade in goods and services current account as well as the accounts showing short- and long-term capital flows.
Current account deficits and surpluses
Understand the factors influencing the size of deficits and surpluses on different components of the Balance of Payments; significance of deficits and surpluses on the current account.
Students should consider whether such current account surpluses and deficits matter and examine measures to reduce such imbalances. The significance of global imbalances should be examined.
Influences on exchange rates
Understand factors influencing exchange rates.
Students should consider the significance of relative interest rates; relative inflation rates; speculation.
Changes in exchange rates
Consider the impact of changes in exchange rates.
For example the implications for competitiveness.
Monetary union
Understand benefits and costs of monetary unions.
For example: the effects on the rate of inflation; unemployment; the Balance of Payments and economic growth. Students could focus on the Eurozone. Specific knowledge of other monetary unions (single currencies) is not required.

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