How do visible and invisible trade differ?

Visible trade counts goods only, invisible trade counts services only.

Which four parts make up the current account?

Goods, services, income and current transfers.

Is a current account deficit always harmful?

Not necessarily; it depends on whether the funds finance investment and on the level of reserves.

What does a fall in reserve assets mean?

The central bank is using foreign reserves to cover the balance of payments gap.

S6 Economics paper 1: trade balance and the current account

2026-11-10

Tutor Prep Guide · S6 Economics Balance of Payments

Ten items start from visible and invisible trade, then cover income, current transfers, reserve assets and the terms of trade.

Direct answers　Items 01 to 03 cover visible and invisible balances, 04 to 06 income, the current account and reserve assets, 07 to 09 exchange rate changes and the terms of trade, and 10 the confusion of the trade balance with the current account.

01　Paper details (check answers afterwards)

Item	Detail
Questions	10
Suggested time	25
Difficulty mix	Foundation 3 · Intermediate 3 · Challenge 3 · Error redo 1
Chapter	Chapter: S6 Economics Balance of Payments and Exchange Rate
Level	S6

02　Questions (10 items)

FoundationAn economy exports goods worth 120 billion dollars and imports goods worth 105 billion dollars. Find the visible trade balance.
FoundationService exports total 42 billion dollars and service imports 50 billion dollars. Find the invisible trade balance.
FoundationThe visible trade surplus is 15 billion dollars and the invisible trade deficit is 8 billion. Find the trade balance.
IntermediateIncome inflow is 30 billion dollars and income outflow is 50 billion. Find the net income balance.
IntermediateGoods surplus 15 billion, services deficit 8 billion, net income outflow 20 billion, net current transfers inflow 3 billion. Find the current account balance.
IntermediateThe current account deficit is 10 billion dollars and net inflow to the capital and financial account, excluding reserve assets, is 6 billion. Find the change in reserve assets.
ChallengeThe exchange rate moves from 7.80 Hong Kong dollars per US dollar to 7.72. Find the percentage appreciation of the Hong Kong dollar.
ChallengeThe export price index is 120 and the import price index is 150, with 100 in the base year. Find the terms of trade index.
ChallengeA machine sells for 31,200 Hong Kong dollars. What is its US dollar price at rates of 7.80 and 7.90, and how far does that price fall?
Error redoA common slip: goods exports are 150 billion and goods imports 140 billion, so the 10 billion is called a current account surplus. What is wrong?

03　Answers and one-line notes

#	Answer	One-line note
1	A visible trade surplus of 15 billion dollars (120 minus 105).	Visible trade covers goods only; the balance is goods exports minus goods imports.
2	An invisible trade deficit of 8 billion dollars (42 minus 50).	Invisible trade counts services only, so imports above exports give a deficit.
3	A trade surplus of 7 billion dollars (15 minus 8).	The trade balance adds the visible and invisible balances together.
4	A net outflow of 20 billion dollars (30 minus 50).	Income covers investment returns and compensation of employees, so opposing flows are netted.
5	A current account deficit of 10 billion dollars (15 minus 8 minus 20 plus 3).	The current account has four parts: goods, services, income and current transfers.
6	Reserve assets fall by 4 billion dollars (10 minus 6).	Capital inflow covers part of the deficit and reserves cover the rest.
7	The Hong Kong dollar appreciates by 1.03 per cent ((7.80 minus 7.72) over 7.80).	Fewer Hong Kong dollars per US dollar means the local currency has strengthened.
8	The terms of trade index is 80 (120 divided by 150, times 100).	A reading below 100 means export prices are low relative to import prices.
9	The prices are 4,000 dollars and 3,949.37 dollars, a fall of 1.27 per cent.	A weaker Hong Kong dollar makes the same local good cheaper in foreign currency.
10	The 10 billion is only the visible trade surplus; services, income and current transfers still have to be added.	The trade balance is not the current account, which also holds services, income and transfers.

04　What to do after marking

After marking, redo only the wrong items and write down which step went wrong (formula, unit, or misread number).
Repeat the same item two days later; move to the next paper only when both attempts are correct.
Parents only need the answer and note columns; there is no need to explain every item.

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