How is paper 4 different from the first three?

Paper 4 drills the commonest balance of payments slips: the wrong base in a percentage change, capital inflow treated as current account income, and volume and price changes added instead of multiplied.

Why should a percentage change use the new value as the base?

When the rate moves from 7.80 to 8.00 the change is measured against the final 8.00; using 7.80 overstates the depreciation as 2.56 per cent.

Can a capital inflow be treated as current account income?

No. The current account covers goods, services, income and current transfers only; a capital inflow finances the deficit and sits in a different account.

What should be done after a wrong answer?

Write down whether the slip was the base, the account classification or the volume-price multiplication, then redo a similar item rather than only reading the answer.

S6 Economics balance of payments paper 4: error drills and common slips

2026-11-10

Tutor Prep Guide · S6 Economics Balance of Payments

Ten items target visible and invisible trade, the four parts of the current account, depreciation size, the terms of trade, reserve financing and the real rate, each with a one-line note.

Direct answers　Items 01 to 03 cover the trade and current account, 04 to 06 depreciation size, the terms of trade and reserve financing, 07 to 09 volume and price changes, the real rate and cross rates, and 10 the counting of capital inflow as current account income.

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 90 billion dollars and imports goods worth 96 billion dollars. Find the visible trade balance.
FoundationService exports are 25 billion dollars and service imports 19 billion dollars. Together with the goods deficit in item 1, find the trade balance.
FoundationThe trade account balances, net income inflow is 4 billion dollars and net current transfers outflow is 2.5 billion dollars. Find the current account balance.
IntermediateThe Hong Kong dollar weakens from 7.80 to 8.00 per US dollar. Using the new rate as the base, find the percentage depreciation.
IntermediateThe export price index is 108 and the import price index is 96. Find the terms of trade index.
IntermediateThe current account deficit is 18 billion dollars and net capital inflow is 7 billion dollars. Find the change in reserve assets.
ChallengeExport volume rises 15 per cent and export prices fall 4 per cent. Find the percentage change in the value of exports.
ChallengeThe nominal rate is 7.80 Hong Kong dollars per US dollar, the local price index is 102 and the foreign index is 105. Find the real exchange rate.
ChallengeOne US dollar buys 7.80 Hong Kong dollars and 7.20 renminbi. How much renminbi do 100 Hong Kong dollars buy?
Error redoA student sees a current account deficit of 12 billion dollars and a capital inflow of 20 billion dollars, adds the two figures and reports a current account surplus of 8 billion. What is the correct conclusion?

03　Answers and one-line notes

#	Answer	One-line note
1	A visible trade deficit of 6 billion dollars (90 minus 96).	Visible trade covers goods only; exports below imports give a deficit.
2	The trade account balances: a service surplus of 6 billion exactly offsets the goods deficit of 6 billion.	Visible and invisible trade must be added together to give the trade balance.
3	A current account surplus of 1.5 billion dollars (0 plus 4 minus 2.5).	The current account is the sum of goods, services, income and current transfers.
4	A depreciation of 2.50 per cent ((8.00 minus 7.80) divided by 8.00).	When the rate rises from 7.80 to 8.00 the change is measured against the new value 8.00; using 7.80 wrongly gives 2.56 per cent.
5	The terms of trade index is 112.5 (108 divided by 96, times 100).	An index above 100 means exports are worth relatively more than imports.
6	Reserves fall by 11 billion dollars (18 minus 7).	The part of the deficit not covered by capital inflow must be financed from reserves.
7	Export value rises 10.4 per cent (1.15 times 0.96 equals 1.104).	Value change is the product of the volume and price changes, not their sum.
8	The real rate is 7.58 (7.80 times 102 divided by 105), a real appreciation of 2.86 per cent.	The real rate adjusts the nominal rate for relative prices; lower local inflation pulls it down, which is a real appreciation.
9	92.31 renminbi (7.20 divided by 7.80, times 100).	First find the cross rate of 0.9231 renminbi per Hong Kong dollar, then multiply by 100.
10	The current account stays in deficit at 12 billion dollars; after the 20 billion capital inflow, reserves rise by 8 billion.	Capital inflow belongs to the capital account and cannot be counted as current account income; only the two together give the overall balance of payments.

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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