FACULTY OF BUSINESS MANAGEMENT

UNIVERSITI TEKNOLOGI MARA

TUTORIAL CHAPTER 5

COURSE NAME: INTRODUCTION TO INTERNATIONAL BUSINESS

COURSE CODE: BA111

NAME: MUHAMMAD ZULFA ZAINI BIN ZAIDI

STUDENT ID: 2021613808

A) Answer All Questions.

1. List the four major accounts of the BOP accounting system and their components?

The Balance of Payments (BOP) accounting system consists of four major accounts, each
tracking different aspects of a country's international transactions. The Current Account
records the flow of goods, services, income, and unilateral transfers. Its components include
the Trade Balance (exports minus imports of goods), Services Balance (trade in services like
tourism and transportation), Primary Income (income from investments abroad minus income
earned by foreign investors domestically), and Secondary Income (unilateral transfers like
remittances and foreign aid). The Capital Account monitors non-financial asset transfers,
including gifts and inheritances. The Financial Account tracks changes in ownership of
financial assets and liabilities, such as foreign direct investment (FDI) and portfolio
investment. Lastly, the Reserves Account reflects changes in a country's foreign exchange
 reserves and gold holdings. These accounts provide a comprehensive overview of a nation's
economic interactions with the rest of the world.

2. What factors cause measurement errors in the BOP accounts?

Measurement errors in the Balance of Payments (BOP) accounts can arise due to various
factors, leading to inaccuracies in recording international transactions. One common factor is
the underreporting or misreporting of transactions, which can occur intentionally to evade
taxes or regulatory requirements, or inadvertently due to errors in data collection or reporting.
Another factor is the difficulty in accurately valuing certain transactions, such as services or
non-market transactions, which may lack clear market prices. Additionally, differences in
timing between when transactions are initiated and when they are recorded in the BOP
accounts can lead to discrepancies. Moreover, inconsistencies in classification and
categorization of transactions across different reporting entities or countries can contribute to
measurement errors. Lastly, the complexity of global financial flows and the
interconnectedness of economies can make it challenging to capture all relevant transactions
accurately. These factors highlight the importance of robust data collection methods, rigorous
validation processes, and ongoing efforts to improve the accuracy and reliability of BOP
measurements.

3. Identify the different types of balance of payments surpluses and deficits.?

Balance of Payments (BOP) surpluses and deficits can manifest in different forms, reflecting
a country's economic interactions with the rest of the world. Trade surpluses or deficits stem
from disparities in goods exchange, where a surplus occurs if exports exceed imports and a
deficit if imports surpass exports. Services surpluses or deficits arise from trade imbalances in
services like tourism and financial services. Primary income surpluses or deficits result from
differences in income earned by residents from foreign investments compared to income
earned by foreign investors domestically. Secondary income surpluses or deficits arise from
unilateral transfers like remittances and foreign aid. Understanding these types of surpluses
and deficits is pivotal for gauging a nation's economic health, its capacity to meet external
obligations, and its overall financial stability.
4. What country need to do if they facing surplus and deficit?

When a country faces a surplus in its Balance of Payments (BOP), it can save the extra
money by building up reserves, investing abroad, or encouraging domestic spending through
fiscal policies like tax cuts or increased public spending. On the other hand, if a country has a
deficit, it might devalue its currency to make exports cheaper, promote exports through
subsidies or infrastructure investments, restrict imports with tariffs or quotas, or address
underlying issues like low productivity and competitiveness through structural reforms.
These measures help countries manage their economic imbalances and maintain stability.