ECS3703
EXAM PACK
2023
,
,
, SECTION A
You must answer all question in this section.
QUESTION 1
(a) Discuss the financial account of the South African Balance of Payment (15)
The financial account is part of a South Africa's balance of payments. It shows the
change in South Africa-owned assets abroad and foreign-owned assets in South Africa.
The financial account is a measurement of increases or decreases in international
ownership of assets. The owners can be individuals, businesses, the government, or its
central bank. The assets include direct investments, securities like stocks and bonds,
and commodities such as gold and hard currency.
The financial account of South Africa is subdivided into direct investment, portfolio
investment and other investment. The financial account is a large component of the
balance of payments. It adds to the balance of payments when it's positive, or when
foreign money is flowing into the South Africa to purchase assets. It subtracts from
the balance of payments when domestic money is flowing out of the South Africa to
purchase foreign assets.
If the financial account offsets the trade deficit, it means the South Africa is selling off
its assets to pay for purchases of foreign goods and services. That's like selling off
your land to pay for groceries. You would be better off investing in that land by
farming it to grow your food. It’s not sustainable to sell off all your assets for
something consumable.
(i) Direct investment foreign investment in South Africa and investments abroad by
South Africans. It is productive investment thus it is investment in plant, equipment,
machinery or factories, i.e. investment that will help with the process of wealth
creation. Direct investment is investment undertaken by an entity resident in one
economy in an enterprise resident in another economy. The purpose of the investment
is to obtain or sustain a lasting interest in the enterprise and exercise a significant
degree of influence in its management.
1
EXAM PACK
2023
,
,
, SECTION A
You must answer all question in this section.
QUESTION 1
(a) Discuss the financial account of the South African Balance of Payment (15)
The financial account is part of a South Africa's balance of payments. It shows the
change in South Africa-owned assets abroad and foreign-owned assets in South Africa.
The financial account is a measurement of increases or decreases in international
ownership of assets. The owners can be individuals, businesses, the government, or its
central bank. The assets include direct investments, securities like stocks and bonds,
and commodities such as gold and hard currency.
The financial account of South Africa is subdivided into direct investment, portfolio
investment and other investment. The financial account is a large component of the
balance of payments. It adds to the balance of payments when it's positive, or when
foreign money is flowing into the South Africa to purchase assets. It subtracts from
the balance of payments when domestic money is flowing out of the South Africa to
purchase foreign assets.
If the financial account offsets the trade deficit, it means the South Africa is selling off
its assets to pay for purchases of foreign goods and services. That's like selling off
your land to pay for groceries. You would be better off investing in that land by
farming it to grow your food. It’s not sustainable to sell off all your assets for
something consumable.
(i) Direct investment foreign investment in South Africa and investments abroad by
South Africans. It is productive investment thus it is investment in plant, equipment,
machinery or factories, i.e. investment that will help with the process of wealth
creation. Direct investment is investment undertaken by an entity resident in one
economy in an enterprise resident in another economy. The purpose of the investment
is to obtain or sustain a lasting interest in the enterprise and exercise a significant
degree of influence in its management.
1
