Fig. 2 shows the Balance of Payments on the current account of two countries. [Figure 2 Balance of Payments] | | Country X $bn | Country Y $bn | |---|---|---| | Visible exports | 165 | 135 | | Visible imports | 180 | (i) | | Balance of (ii) | -15 | -2 | | Invisible exports | 74 | 45 | | Invisible imports | 61 | 37 | | Balance of invisibles | 13 | (iii) | | Balance of Payments | (iv) | 6 |

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2018). The mark or mark type is shown in brackets.

1. [4] 1 mark for each correct answer 3(a)(i) 137 (1) 3(a)(ii) Trade / visibles (1) 3(a)(iii) 8 (1) 3(a)(iv) -2 (1)
2. [3] Up to 3 marks for justified reasoning OFR may be applied from part (b) Country Y (1) it has a surplus / favourable balance (6 bn) (1) whereas Country X has a deficit / unfavourable balance (-2 bn) (1)
3. [2] 1 mark for each feature ∞ Sizes can vary ∞ Sizes are standard ∞ Metal boxes ∞ Fitted with handling devices / lifted by cranes ∞ Fitted with locks / can be locked ∞ Can be carried on different forms of transport or examples ∞ Can be refrigerated ∞ Numbers used for identification
4. [6] Factors affecting the choice of using a letter of credit or electronic transfer: ∞ Distance – both are useful for international trade when buyers and sellers are in different countries ∞ Acceptability/location – payments can be made in the buyer's currency, the seller's, or any freely traded currency ∞ Speed of transfer - transfer between banks' electronic accounts in different countries can happen on the same working day ∞ Safety - reduced risk of loss/theft because the transactions are made from the business' bank account to another bank account ∞ Costs - Banks charge for both services ∞ Amount - large payments can be made on both services ∞ Convenience – electronic transfers are easier to set up than letters of credit as there are more stages in the payment process Evaluation: In this instance the importer has already received the goods, so will take advantage of the speed and ease of electronic payment. If in the future the importer was buying from an unknown exporter then the security of guaranteed payment between banks, as a result of a letter of credit agreement, might be a better recommendation.