a) Mention Five benefits enjoyed by counties engaging in foreign trade. b) Explain five measures taken by countries to correct an unfavourable balance of pa...

Answer Details

(a) Five benefits enjoyed by countries engaging in foreign trade

1. Access to goods not produced at home. Countries can import goods they cannot produce because of climate, resources or technology.
2. Wider market for exports. Producers can sell surplus output abroad, earning more income and encouraging large-scale production.
3. Earning of foreign exchange. Exports bring in foreign currency needed to pay for imports and to finance development.
4. International specialisation. Each country produces what it can make most efficiently (comparative advantage), raising world output and lowering costs.
5. Promotion of international relations. Trade fosters friendship, cooperation and understanding among nations.

(Also acceptable: transfer of technology and skills, and higher standard of living through greater variety of goods.)

(b) Five measures to correct an unfavourable balance of payments

1. Devaluation of the currency. Lowering the value of the local currency makes exports cheaper and imports dearer, improving the balance.
2. Import restrictions. Imposing tariffs, quotas, or outright bans on non-essential imports reduces the value of imports.
3. Export promotion. Encouraging exports through subsidies, incentives and export drives increases foreign earnings.
4. Exchange control. Restricting the amount of foreign currency available for imports and foreign spending curbs the outflow of funds.
5. Deflationary policy. Reducing domestic demand (through higher taxes and reduced government spending) cuts spending on imports.

(Also acceptable: promoting local production/import substitution, and encouraging tourism and foreign investment.)