Question

Question 4

1. The following are hypothetical data on Malaysia’s balance of payments. Use the data to calculate the following:

RM (million)

Exports of goods	553,180
Imports of goods	-412,454
Exports of services	98,270
Imports of services	-94,467
Net Income on investment	-17,103
Net transfer	-99,476
Increase in foreign holdings of assets in Malaysia	11,000
Increase in Malaysia holdings of assets in foreign countries	-38,500
Statistical discrepancy	-300

1. the balance on the current account
2. the balance of trades
3. the balance of services
4. the balance on the financial account   
5. the balance on capital account

2. Explain whether it is possible for a country to have a comparative advantage in the production of a product without having an absolute advantage in the production of that product.   

3. How the comparative advantage theory explains the basis for trade between nations.

Answer 1

i. the balance on the current account

= Exports of goods - Imports of goods + Exports of services - Imports of services + Net Income on investment + Net transfer

= 553,180 - 412,454 + 98,270 - 94,467 + (-17,103) + (-99,476)

= 27,950

SURPLUS IN CURRENT ACCOUNT= 27,950 RM(MILLIONS)

ii. the balance of trades

= Exports of goods - Imports of goods

= 553,180 - 412,454

SURPLUS IN BOT ACCOUNT= 140,726 RM(MILLIONS)

iii. the balance of services

= Exports of services - Imports of services

= 98,270 - 94,467

SURPLUS= 3,803 RM(MILLIONS)

iv. the balance on the financial account

= Increase in foreign holdings of assets in Malaysia - Increase in Malaysia holdings of assets in foreign countries

= 11,000 - 38,500

DEFICIT IN FINANCIAL ACCOUNT= (-) 27,500 RM(MILLIONS)

v. the balance on capital account

=0 (BECAUSE NO ITEM OF CAPITAL NATURE IS MENTIONED IN THE INFO GIVEN ABOVE)