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Hi, please
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Q-
If you were advising the leaders of the KSA on optimal economic policy, would you suggest that the KSA consider being a little more aggresive on the consumption front, perhaps even pusing for a deficit in the Capital Account? Are there any benefits to running a Capital Account deficit?
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Kindly make the reply short and to the point no more than 100 – 150 word
If you support your reply with references will be great.
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Running head: INTERNATIONAL ECONOMICS
International economics
University
Student’s name
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INTERNATIONAL ECONOMICS
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PART 1
A balance of payments is a record of all economic activities between residents of a
country and other residents of other countries globally. The government maintains the data for
one year and determines the nature of the balance of payments at the end of the economic period.
The records may be kept and calculated quarterly, semi-annually, or yearly (Harvey, 2019). The
Kingdom of Saudi Arabia records quarterly before determining the annual BOP. The balance of
payment is divided into three categories: current, capital, and financial accounts.
The current accounts are the records for international transactions of goods and services
between different countries. A country such as Saudi Arabia participates in international trade,
which involves imports and exports. The cash inflow and outflow from the activities form part of
the current account. The second is capital accounts, which include all international transfers
between one and other countries globally. The details in the capital accounts are the inflows and
outflows from the disposal or acquisition of non-financial assets and non-producer assets such as
land and mines, respectively (Ibarra Rammrez & Tellez-Leon, 2017). The last are the financial
accounts, which are the records for international transactions of financial activities in different
countries. The financial account records investment-related activities such as the purchase and
sale of real estate, stocks, and bonds between the residents of one country and the outside world.
KSA has a net capital of -US$2,460, a net financial capital of US$139.586 million, and current
net capital of US$150.753 million.
PART 2
The supply and demand for foreign exchange are considered to be derived from the
schedule because they come from the debit and credit items in a country’s balance of payments
per financial year. Preparing a balance of payment follows the accounting approach of double
INTERNATIONAL ECONOMICS
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entry, where one account is debited while another is credited with the same amount. The first is
credit transactions, which relate to payments received from foreign countries due to the export of
goods and services and are recorded with a positive sign indicating that they are again
(Carbaugh, 2019). On the other hand, debit transactions relate to payments to foreign countries
due to the import of goods and services and are recorded with a negative sign indicating that it is
a loss. The credit transactions include the export of merchandise, transportation receipts, income
from foreign investments, and aid from foreign nations. On the other hand, debit transactions
include the import of merchandise, transportation expenditures, income paid to foreign
investments, and aid to foreign nations.
PART 3
A trade balance is the difference between the money from the export of goods and
services by one country and the expenditure on goods and services by other countries. The result
may be positive or negative. A surplus on merchandise occurs when the country receives more
value from the exports than the value spent on imports. On the other hand, a trade deficit occurs
when the country receives less value for its exports than the value spent on imports. All countries
strive to have a surplus current account because it indicates that the country receives more from
its exports than it spends on imports.
The KSA had a trade surplus of 40848.10 SAR million in August 2023, indicating that it
gets more value from exports than spent on imports. The first impact is that it creates more job
opportunities in the country due to the economy’s expansion (Carbaugh, 2019). The second
impact is the increase in higher interest rates and prices because of the high supply of money in
the economy. Thirdly, the trade surplus helps the country control its currency through trade since
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the surplus makes the local currency stronger against foreign currencies. The analysis reveals
that trade balances have positive and negative impacts.
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References
Carbaugh, R. (2019). The balance-of-payment. In International economics (7th ed., pp. 345374). Cengage Learning.
Harvey, J. T. (2019). Exchange rates and the balance of payments: Reconciling an inconsistency
in post Keynesian theory. Journal of Post Keynesian Economics, 42(3), 390415. https://doi.org/10.1080/01603477.2018.1548285
Ibarra Rammrez, R., & Tellez-Leon, I. E. (2017). Are all types of capital flows driven by the
same factors? Evidence from Mexico. SSRN Electronic
Journal. https://doi.org/10.2139/ssrn.3131650
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