Fig. 3.1 shows the Balance of Payments in three countries: country A, country B and country C. Balance of Payments ($m) | | Country A | Country B | Country C | |:--------------------|:----------|:----------|:----------| | Visible Trade: Exports | 9589 | 8912 | 4324 | | Imports | 8364 | 6327 | 5675 | | Visible Trade Balance | 1225 | 2585 | (1351) | | Invisible Trade Balance | 1245 | 512 | 3412 | [Figure 3.1] Use Fig. 3.1 to help you answer the following questions.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2024). The mark or mark type is shown in brackets.

1. [1] Country A
2. [1] Country C
3. [1] International trade in services/intangibles or buying/selling in services/intangibles/intangible goods or importing/exporting in services/intangible goods
4. [2] The imported goods will become more expensive (1) reduces imported goods (1) as tariffs are taxes on imported goods (1)
5. [2] The imported goods will not be allowed into the country (1) reduces imported goods (1) as an embargo is a ban on trade (1)
6. [3] Yes - raise awareness /recognition (1) a form of advertisement/promotion of products (1) attracts customers / increases sales (1) increases revenue /income (1) attract investors (1) some products are difficult to sell without displaying them (1) e.g. industrial machinery (1) launch/showcase products/introduce goods/display goods (1) helps brand image (1) meeting face-to-face with potential customers is a great way to start building relationships / improves networking (1) build marketing database of potential customers (1) to reach wider/larger market (1) exporter able to explain their products in person / answer questions (1) gain feedback (1) on what customers want (1) check on what competition is doing (1) gives exporter ideas (1)
7. [3] No - increases costs (1) e.g. travel/accommodation/stands (1) it will need to make the stand better than competitors (1) to get potential customers attention (1) not guaranteed to get sales (1) potential low turnouts (1) not enough delegates to make presence worthwhile / can be a waste of resources (1)
8. [8] Methods of payment include letters of credit/documentary credit, bank draft, bill of exchange, electronic transfer, cash in advance/credit/debit cards.
9. [8] Letter of credit/documentary credit – is a promise by a bank to pay an exporter if all terms of the contract are executed properly. It guarantees payment/eliminates the risk of non-payment as the payment is made before shipment The process involves several stages: - The contract is negotiated and confirmed - The importer applies for the documentary credit with their bank - The documentary credit is set up by the issuing bank and the exporter and the exporter's bank are notified by the importer's bank - The goods are shipped - Documents verifying the shipment and all terms of the sale are provided by the exporter to the exporter's bank and the exporter's bank sends the documents to the importer's issuing bank - The issuing bank verifies the documents and issues payment to the exporter's bank - The importer collects the goods - It is used if the importer has not established credit with the exporter, but the exporter is comfortable with the importer's bank.
10. [8] Bank draft - is a cheque from a financial institution. This means the funds for the transaction are withdrawn from the institution, rather than from the individual's account. When an exporter requests an international banker's draft, the importer must immediately transfer the funds from their account to cover the amount of the cheque, which adds an extra level of security. Drafts can be drawn in the foreign currency.
11. [8] Bill of exchange – is a binding agreement by an importer to pay a fixed amount of cash to the exporter as of a predetermined date or on demand. If an exporter accepts a bill of exchange, its risk is that the importer may not pay. No matter who the importer is, the exporter should investigate the creditworthiness of the importer before accepting the bill. If the importer refuses to pay on the due date of the bill, then the bill becomes dishonoured.
12. [8] Electronic/bank transfers/EFT/international money transfer (can allow are payments completed over a computer network. These payments move between people and banks to pay exporters quickly on the same day. No paperwork is involved. There is less need for currency exchange. These payments reduce the risk of theft as the transaction takes place within the bank.
13. [8] Cash in advance - credit card/debit card/e-wallets is where the importer pays for the goods upfront and before shipment. The payment may be completed by any means agreed between the exporter and the importer, e.g. payment by credit card and debit card. This payment term clearly favours the exporter because it means they receive payment while still in possession of the goods. The advantage for the exporter is no risk of non-payment and more cash up-front. For the importer, this payment method means negative cash flow and a risk of not receiving the goods or receiving defective goods.
14. [8] It can also be an option for exporters who are not convinced of the importer's creditworthiness, or where the importer completely trusts the exporter. There are likely to be limits on the size of payments you can receive via each service, and fees are charged
15. [8] Cash on delivery is a method of collecting payment that requires customers to pay for goods at the time of delivery. Despite its name, cash on delivery can refer to check or electronic payments too. For instance, sales reps can collect card payments in the field through a mobile card machine. Whereas most ecommerce sales require that customers pay upfront before receiving a product, Cash on Delivery allows customers to manage cash flow by paying at the time of delivery. Cash on delivery also allows customers with minimal or less favourable credit histories to do business with vendors they would otherwise not be able to.
16. [8] Cash with Order (CWO) is also known as Cash in Advance (CIA), is a payment term used in shipping and commerce that requires the buyer to pay for the goods in full before the seller ships the products. Under a CWO payment arrangement, the seller requests payment from the buyer upfront, and the buyer makes the payment before the seller ships the goods. The payment can be made through a variety of methods, such as wire transfer, credit card, or other agreed-upon payment methods. Once the payment is received and verified by the seller, they will ship the goods to the buyer.
17. [8] Evaluation: The cash in advance method is the most secure for exporters because they are securely paid before goods are shipped and ownership is transferred, with letters of credit the next most secure of method of payment. However, deciding on which payment method to use is not always easy as much will depend on what the importer prefers and what sort of bargaining position the exporter is in to demand a particular method of payment, but minimising the risk of non-payment in international trade is always a good thing.