◄UNIT 3:FREE TRADE AND TRADE PROTECTIONISMUNIT 5:EXCHANGE RATES.►

UNIT 4:BALANCE OF PAYMENT (BOP).

  • UNIT 4:BALANCE OF PAYMENT (BOP).

    Unit Competency: 

     Learners will be able to analyse the balance of payment position of LDCs.

    Introductory activity

    Country ‘Z’ revealed its capacity to save to pay for its imports in 2018. It 
    also showed how much economic output it produced to pay for her growth 
    for that particular year. In 2017, it had shown that it had experienced her 
    imports of goods, services and capital being greater than its exports 
    while in 2018, it showed that her exports of goods, services and capital 
    were more than its imports. For all the positions of country ‘Z’ in the years 
    mentioned, however, she would endeavor to bring back her economy to 

    equilibrium.

    Required: Analyse the case study above and use it to carry out research 

    from any economics related resource to;

    i) Explain the economic term that is given to the document that Country 
    ‘Z’ used to present her capacity to save for the payment of its imports and 

    her output produced to pay for her growth.

    ii) Describe economic situation in 2017 and 2018 respectively as stated 

    in the case study.

    iii) Explain the resultant outcome for each position mentioned in ii) above.

    iv) Explain what, according to the case study, is described as ‘equilibrium’.

    iv) Identify the likely measures country ‘Z’ would put to bring her economy 

    back to equilibrium.

    4.1. Meaning and terminologies used in Balance of 

    Payment (BOP).

    Activity 4.1

    Use the knowledge and understanding gained from the research carried 

    out in the introductory activity above, to; 

    a) Describe what you understand by the term Balance of payment

    b) State the economic terms given to the situations where there is;

    i) Import expenditure being greater than export earnings

    ii) Import expenditure being less than export earnings

    iii)Import expenditure and export earnings are equal.

    iv) Trade in only goods

    v) Trade in only services.

    vi)Relationship between trade in goods only and services only respectively.

    vii) Statistical record of the character and dimensions of the country’s 

    economic relationships with the rest of the world.

    4.1.1: Meaning of Balance of Payment (BOP)

    Balance of payment (BOP) also known as balance of international payments, 

    is a statement that summarizes an economy’s transactions with the rest of 

    the world for a specified time period. It is a summary statement of a nation’s 

    financial transactions with the outside world. It shows the relationships between 

    a country’s total expenditure abroad with its total income from abroad. It 

    encompasses all transactions between a country’s residents (individuals, firms 

    and government bodies) and its nonresidents (individuals, firms and government 

    bodies) involving goods, services and income; financial claims on and liabilities 

    to the rest of the world; and transfers such as gifts. Thus, the balance of 

    payments includes all external visible and non-visible transactions, together with 

    their respective receipts and expenditures, of a country.

    4.1.2: Terminologies used in BOP:

    a) Balance of trade; this refers to the difference between visible exports 

    and imports.

    b) Balance of invisible trade; this refers to the difference between 

    invisible exports and imports.

    c) BOP deficit or unfavourable BOP; this is where total expenditure 

    abroad is greater than total receipts from abroad. 

    d) BOP surplus or favourable BOP; this is where total receipts from 

    abroad are greater than total expenditure abroad. 

    e) BOP disequilibrium; this is where receipts from abroad are not equal 

    to expenditures abroad i.e. either there is a BOP deficit or a BOP surplus. 

    f) BOP equilibrium; this is a situation where revenues from abroad are 

    equal to expenditures abroad.

    g) BOP accounts; this refers to the statistical record of the character and 

    dimensions of the country’s economic relationships with the rest of the 

    world.

    h) Visible trade; this involves the exchange of goods only

    i) Invisible trade; this involves the exchange of services only.

    4.2: Structure of BOP Accounts.

    Activity 4.2

    V

    Analyse the information in the table above and answer the questions that follow.

    a) What does the table portray?

    b) Why are some items recorded on the credit items while others on the 

    debit side?

    c) What examples can you give on transfers on either side? 

    d) What does direct investment by foreign countries and direct 

    investment in foreign countries mean?

    e) Describe how each account works.

    4.2.1: The BOP accounts. 

    The balance of payments account of a country is constructed on the principle 
    of double-entry book-keeping. Each transaction is entered on the credit 
    and debit side of the balance sheet. In balance of payments accounting, 
    the practice is to show credits on the left side and debits on the right side of 
    the balance sheet. The balance of payment represents a summation of country’s 
    current demand and supply of the claims on foreign currencies and of foreign 
    claims on its currency. It is prepared in a single currency, typically the domestic 

    currency for the country concerned. 

    When a payment is received from a foreign country, it is a credit transaction
    while payment to a foreign country is a debit transaction. The principal items 
    shown on the credit side (+) are exports of goods and services, unrequited (or 
    transfer) receipts in the form of gifts, grants etc. from foreigners, borrowings 
    from abroad, investments by foreigners in the country and official sale of reserve 
    assets including gold to foreign countries and international agencies. Therefore, 
    sources of funds for a nation, such as exports or the receipts of loans and 

    investments, are recorded as positive or surplus items.

    The principal items on the debit side (-) include imports of goods and services, 
    transfer (or unrequited) payments to foreigners as gifts, grants, etc., lending 
    to foreign countries, investments by residents to foreign countries and official 
    purchase of reserve assets or gold from foreign countries and international 
    agencies. Therefore, uses of funds, such as for imports or to invest in foreign 

    countries, are recorded as negative or deficit items.

    These credit and debit items are shown vertically in the balance of payments 
    account of a country according to the principle of double-entry book-keeping. 
    Horizontally, they are divided into the following categories: the current account, 
    the capital account, the official settlements account or the official reserve assets 

    account and the errors and omission account as explained below.

    1. Current Account:

    The current account of a country consists of all transactions relating to trade in 
    goods and services and unilateral (or unrequited) transfers. Service transactions 
    include costs of travel and transportation, insurance, income and payments of 
    foreign investments, etc. Transfers relate to gifts, foreign aid, pensions, private 
    remittances, charitable donations, etc. received from foreign individuals and 

    governments to foreigners.

    In the current account, merchandise, exports and imports are the most important 
    items. Exports are shown as a positive item and are calculated f.o.b. (free on 
    board) which means that costs of transportation, insurance, etc. are excluded. 
    On the other side, imports are shown as a negative item and are calculated c.i.f. 

    (costs, insurance and freight) and included.

    The difference between exports and imports of a country is its balance of visible 
    trade or merchandise trade or simply balance of trade. If visible exports exceed 
    visible imports, the balance of trade is favourable. In the opposite case when 

    imports exceed exports, it is unfavourable.

    It is, however, services and transfers or invisible items of the current account 
    that reflect the true picture of the balance of payments account. The balance of 
    exports and imports of services and transfer payments is called the balance of 

    invisible trade.

    The invisible items along with the visible items determine the actual current 
    account position. If exports of goods and services exceed imports of goods and 
    services, the balance of payments is said to be favourable. In the opposite 
    case, it is unfavourable. The net value of these visible and invisible trade 

    balances is the balance on current account.

    2. Capital Account:

    The capital account of a country consists of its transactions in financial assets 
    in the form of short-term (between three months and less than one year) and 
    long-term (one year or more) lending and borrowings and private and official 
    investments. In other words, the capital account shows international flows of 
    loans and investments, and represents a change in the country’s foreign assets 

    and liabilities.

    There are two types of transactions in the capital account—private and 
    government. Private transactions include all types of investment: direct, portfolio 
    and short-term. Government transactions consist of loans to and from foreign 

    official agencies.

    In the capital account, borrowings from foreign countries and direct investment 
    by foreign countries represent capital inflows. They are positive items or 
    credits because these are receipts from foreigners. On the other hand, lending to 
    foreign countries and direct investments in foreign countries represent capital 
    outflows. They are negative items or debits because they are payments to 
    foreigners. The net value of the balances of short-term and long-term direct and 
    portfolio investments is the balance on capital account. The sum of current 

    account and capital account is known as the basic balance.

    3. The Official Settlements Account or official financing account (cash 

    or monetary account).

    The official settlements account or official reserve assets account is, in fact, a 
    part of the capital account. It measures the change in nations’ liquidity and non-liquid 
    liabilities to foreign official holders and the change in a nation’s official 
    reserve assets during the year. It includes a country’s gold stock, holdings of 
    its convertible foreign currencies and SDRs, and its net position in the IMF”. It 

    shows transactions in a country’s net official reserve assets.

    This account records all the transactions related to the change in the country’s 
    foreign exchange reserves and also shows the official foreign reserves in 
    response to current and capital accounts. If there is a surplus on the combined 
    current and capital accounts, this means that the foreign exchange reserves 
    of a country have increased. If there is a deficit on the combined current and 
    capital accounts, this means that the foreign exchange reserves of a country 

    have decreased.

    4. Errors and Omissions:

    This is a balancing item so that total credits and debits of the three accounts 
    must equal in accordance with the principles of double entry book-keeping so 
    that the balance of payments of a country always balances in the accounting 
    sense. In theory, the Capital and Financial Account balance should be equal and 
    ‘opposite’ to the Current Account balance so that the overall Account balances, 
    but in practice this is only achieved by the use of a balancing item called net 
    errors and omissions. This device compensates for various errors and 
    omissions in the balance of payments data, and which brings the final balance 

    of payments account to zero.

    The errors may be due to statistical discrepancies & omission may be due to 
    certain transactions may not be recorded. For e.g.: A remittance by a Rwandan 
    working abroad to Rwanda may not get recorded, or a payment of dividend 
    abroad by an MNC operating in Rwanda may not get recorded or so on. The 
    errors and omissions amount, equals to the amount necessary to balance both 

    the sides.

    Application activity 4.1

    1. With examples, distinguish between credit and debit items on the BOP 

    account.

    2. What do the following mean on the BOP accounts?

    i) A “+” placed on the credit entry.

    ii) A “-” placed on the debit entry.

    3. Fill in the gaps below.

    i) Any time an item (good, service or asset) is exported from a country, 
    the value of that item is recorded as a ………………… (…) entry on the 

    balance of payments, while

    ii)Any time an item (good, service or asset) is imported into a country, 
    the value of that item is recorded as a ……………… (…) entry on the 

    balance of payments.

    4. a) If credits are Rwf5, 000,000 and debits are Rwf4, 000,000, what is 

    the net balance on the BOP account? Interpret your answer. 

    b) If exports are Rwf80bn and imports are Rwf100bn then how much 

    are net exports? Interpret your answer.

    4.2.2: How to offset a BOP deficit and surplus.

    Activity 4.3

    Fill in the following gaps

    1. a) If excess demand for foreign currency in some periods is balanced 

    with excess supply in other periods, then falling reserves in some periods 

    will be offset with rising reserves in other periods leading to ……………

    ………………………………………………………………………………

    ………………….

    b) When the central bank buys domestic currency and sells the foreign 

    reserve currency in the private Forex, the transaction indicates a ………

    ……………………………………………………………………………

    c) When the central bank sells domestic currency and buys foreign 

    currency in the Forex, the transaction indicates a …………………………

    ………………………………………………………………………………

    …

    2. What should be done to rectify the two situations mentioned in b and 

    c above?

    4.2.2.1 Financing deficits/ How to correct a BOP deficit.

    A BOP deficit is a situation where aggregate demand for foreign exchange 

    exceeds aggregate supply for foreign exchange. Or a situation where a 

    country’s expenditure abroad is greater than her receipts from there. Methods 

    to offset a BOP deficit should aim at reducing foreign exchange expenditure, 

    increasing foreign exchange earnings and simultaneous reducing foreign 

    exchange expenditure and increasing foreign exchange earnings. The financing 

    of a deficit is achieved by:

    - Selling gold or holdings of foreign exchange, such as US dollars, yen or 

    euros,

    - Borrowing from other Central Banks or the International Monetary Fund 

    (IMF) 

    - Using of foreign exchange reserves available

    - sale of public assets abroad 

    - Seeking aid and grants from other countries

    - Attracting foreign investments into the country

    - Import substitution strategy

    - Restrictive monetary policy i.e. reduces the amount of money in circulation

    - Improving the service industry e.g. tourism

    - Devaluation.

    - Export promotion strategy — increase the volume of exports and improve 

    the quality of exports.

    - Increase taxes and reduce government expenditure i.e. fiscal policy.

    - Direct control — tariffs; quotas; exchange controls; complete ban, i.e. 

    import restrictions.

    Establishing BOP balance by using the above measures is called 
    accommodating BOP and the items used to get rid of a BOP deficit are 
    known as settlement or accommodating or compensatory or induced 

    items.

    4.2.2.2: Financing surplus/ How to offset a BOP surplus.

    A BOP surplus is a situation where aggregate supply of foreign exchange 
    exceeds aggregate demand for it. Or a situation where a country’s receipts 
    from abroad are greater than her expenditure there. A surplus will be disposed 

    of by:

    - Buying gold or currencies.

    - Paying off debts.

    - Building a stock of foreign exchange reserves

    - Lending to foreign countries

    - Providing aid and grants to other countries

    - Purchase and storage of durable goods

    - Opening current account deposits in foreign banks

    - Purchase of short- and long-term securities from abroad

    - Direct investments abroad.

    The expenditure aiming at getting rid of the BOP surplus through the above 
    means is known as autonomous expenditure and the items used are 

    known as autonomous items.

    Application activity 4.2

    1. A balance of payments surplus means; 

    a) A country’s export earnings are less than her expenditures on imports.

    b) A country’s export earnings are more than her expenditures on imports.

    c) A country’s earnings from exports are equal to what it spends on 

    imports.

    d) Only exports but does not import at all.

    2. The balance of payments always balances in the accounting sense 

    because of the following except;

    a) Total domestic expenditures (C + I + G) must equal current income 

    (C + S + T)

    b) Domestic saving (Sd) must equal domestic investment (Id).

    c) An export surplus on current account (X > M) must be offset by an 

    excess of domestic saving over investment (S > Id).

    d) Inflows must always be greater than outflows.

    3. Explain how a deficit or surplus is measured in the balance of payments. 

    4. Fill in the gaps below;

    a) If the total debits are more than total credits in the current and 

    capital accounts, including errors and omissions, the net debit balance 

    measures……………………………………………

    b) If total credits are more than total debits in the current and capital 

    accounts, including errors and omissions, the net debit balance 

    measures…………………………………

    4.2.3: Causes and Solutions to BOP deficits/problems in 

    developing countries.

    Activity 4.4

    With reference to activity 4.3, we saw that at a certain point of time, a 

    country can experience either of the two situations; i.e. where aggregate 

    demand for foreign exchange exceeds aggregate supply for foreign 

    exchange or, where aggregate supply of foreign exchange exceeds 

    aggregate demand for it.

    i) Describe what is commonly experienced in your country with a clear 

    justification.

    ii) Analyse the causes of such a situation in your country.

    iii) What practical measures does your country normally take to rectify 

    such a position in international market?

    4.2.3.1: Causes of BOP deficits in developing countries.

    During transactions a country may register a deficit or surplus. If a country runs 
    a deficit for a long time and for successive years, such a country is said to face 
    BOP problems. Developing countries commonly register BOP deficit for a long 
    time and for successive years, therefore, have always faced BOP problems due 

    to the following socio-economic and political reasons. 

    - Narrow Export Base: Most developing countries have a narrow export 
    base, basically agricultural commodities. They concentrate in relatively low 

    value-added products which fetch low prices hence less earnings in return.

    - Consumption oriented society: Due to rapid rise in population 
    and increased consumption habits in most developing countries, the 
    domestic manufactured goods are mostly consumed in the country. The 
    exportable surplus reduces; therefore, government has to import more in 
    order to support the alarming population thus causing much expenditure 

    abroad leading to BOP deficits.

    - Poor technology in less developed countries: There is less 
    modernisation, balancing and replacement of machinery in the industrial 
    sector in most developing economies. This has led to fall in production and 

    decline in the quality of products thus has adversely affected exports.

    - Production of primary products: Most developing countries produce 
    and export primary products which are both price and income inelastic thus 
    earning less from international trade. The share of value-added goods must 
    increase to earn foreign exchange and turn the trend of adverse balance 
    of payment. The production of value-added goods is at basic stage in 

    developing countries that leads to adverse BOP.

    - Devaluation: The repeated devaluation of developing countries’ currencies 
    has not helped in the increase of exports. It has made the imported inputs 
    costlier. The demand for their goods in the international market is inelastic. 
    As such, due to devaluation, as tool for boosting exports is not effective.
    Tough Competition: Stiff competition from the foreign value-added goods 
    which has reduced the volume of foreign trade in developing countries. 
    There is availability of higher standard goods at lower prices in international 
    market. It causes reduction in developing countries’ exports, which result in 
    deficit in BOP. Increase in Prices of Inputs: The increase in the prices 
    of fuel, electricity, high capital costs of imported machinery, exchange rates 
    etc. have inflated developing countries’ product prices. The high costs of 
    both imported capital goods and industrial raw materials, on which domestic 
    industries are heavily dependent, and the inflationary impact of the rise in 
    the prices of inputs are not helping in achieving the export targets set in 

    each financial year which results into deficit in BOP.

    - Heavy protectionist policies by Developed countries: Protectionist 
    policies by developed countries on developing countries like imposition of 
    tariff and non-tariff barriers have adversely affected developing countries’ 
    exports. The advanced countries of the world have imposed technical 
    barriers such as patents, copyrights, trade-marks and designs etc. on their 
    imports. Developing countries have to upgrade the standard of purity and 
    quality to compete for their products in the international market thereby 
    leading to less foreign exchange earnings by Developing countries and 

    consequently BOP deficits.

    - Fall in Terms of Trade: The import unit values are higher than the export 
    unit values for most Developing countries. A decline in terms of trade 

    causes imbalance in the balance of payment.

    - Foreign Debts Servicing: High expenditure on debt servicing since 
    most Developing countries are poor and mostly rely on foreign resources 

    especially through borrowing.

    - Import of Capital Goods: Most Developing Countries import expensive 
    capital goods for rapid industrialization of their countries in order to build up 
    the economy. The heavy import of machinery has considerably increased 

    the import bill and has adversely affected balance of payment.

    - High demonstration effect: Most developing countries have Import 
    oriented economies through demonstration effect leading to high demand 
    for capital and luxurious goods thus leading to high foreign exchange 

    expenditure which adversely affect BOP position.

    - Rise in Oil Prices: The sharp rise in the prices of oil in the recent past is 
    taking a big amount of the foreign exchange earnings. Developing countries 
    import bill of petroleum group increases year after year leading to BOP 

    problems in Developing Countries.

    - Political instabilities and insecurity: Experience shows that political 
    instability and disturbances in Developing countries cause large capital 
    outflows and hinder Inflows of foreign capital. For example, the wide 
    spread political instabilities and insecurity in most Developing countries 
    discourages production which reduces on the volume of exports. On the 
    other hand, Developing Countries have to purchase modern weapons for 
    their defense at a very high cost from different countries, which increases 

    burden on their BOP and it becomes adverse.

    - Fluctuations in the prices of exports of Developing Countries:
    Since Developing Countries normally export primary products, their prices 
    keep on fluctuating in the international market therefore BOP deficit when 

    export prices fall.

    - Imported inflation.: Since most Developing Countries import expensive 
    capital goods, it makes them to produce expensively thus leading to 
    expensive exports which reduces their demand in the external markets thus 

    less foreign exchange earnings from them.

    - High population growth in Developing Countries: High population 
    growth in poor countries adversely affects their BOP because it increases 
    the needs of the countries for imports and decreases their capacity to 

    export.

    - Natural calamities in Developing Countries: Natural calamities like 
    bad weather reduce the yields from the agricultural sector as their dominant 

    export sector thus leading to adverse BOP.

    - Poor infrastructure in most Developing Countries: Most Developing 
    countries have poorly developed and insufficient socio-economic 
    infrastructure which has led to supply rigidities thus less export volume and 

    therefore less earnings from them.

    - Changes in fashions, tastes and preferences in the world market: 
    This has reduced on the demand for Developing countries’ exports thus 

    adversely affecting their BOP position.

    - Unfair International Commodity Agreement (ICA): Weak ICA leading 
    to less bargaining powers in the international markets leading to low export 
    prices and low earnings from exports hence BOP deficits.
    - Insufficient export promotion institutions to promote export sector 

    through encouraging vent for surplus in most Developing Countries.

    - Inflation in most Developing Countries’ economies: Most Developing 
    countries’ economies are hit by inflation which makes their exports expensive 
    leading to low demand for them in the international markets thus earning 

    less from them.

    - Depreciation of Developing countries’ currencies: Persistent 
    depreciation of Developing countries’ currencies has made their products 
    (exports) cheap while imports expensive thus high foreign exchange 

    expenditure.

    4.2.3.2: Solutions to BOP deficits in developing countries:

    Sustained or prolonged deficit has to be settled by short term loans or depletion 
    of capital reserve of foreign exchange and gold. The following remedial measures 

    are recommended:

    - Export promotion: Export promotion agencies, Export Development 
    Fund and Export Processing Zones etc. should be made more active to 

    increase export and to correct the BOP

    - Import restrictions and Import Substitution. Governments 
    should increase import duties on commodities similar to those produced 
    at home, encouraging domestic industries to use local raw materials so 
    as to manufacture Import substitutes in the country. If home production 
    is increased e.g. chalk, fertilizer, paper, steel, edible oil and electrical 

    goods, there will be less need for such imports.

    - Use restrictive monetary policy to control inflation which 
    discourages exports and encourages imports. This lowers the prices in 
    the country for domestic commodities thus raising their demand in and 

    out of the country.

    - Government should control foreign exchange by ordering all exporters to 
    surrender their foreign exchange to the central bank and then ration out 

    foreign exchange among licensed importers.

    - Devaluation of domestic currency which makes domestic goods 
    cheaper for the foreigners. However, care should be taken that devaluation 

    should not cause rise in internal price level.

    - Encouraging investors through establishing institutions that help and 

    advise investors on investment prospects in the country.

    - Opening new markets and making regional groupings to widen 

    markets for their exports.

    - Ensuring political stability and security in all parts of the country 
    so as to attract investors, easy exploitation of resources which increases 
    production activities thus increase the volume of exports and as well 

    reduce on the expenditure on importation of military hard ware.

    - Training local manpower e.g. through universal primary and secondary 
    education and setting up different training institutions so as to increase 

    skills of indigenous manpower and reduce foreign expatriates.

    - Seeking and being granted a debt relief so as to reduce expenditure 

    on debt servicing.

    - Population Control so as to reduce on foreign exchange expenditure 

    on imported commodities to cater for the alarming population.

    - Innovations and inventions to improve on technology so as to improve 
    on productivity, increase the volume of exports and foreign exchange 
    earnings as well. This also improves the quality of products according to 

    international standard.

    - Strengthening the tourism industry as an export diversifier.

    - Strengthening the ICA so as to increase the export volume and 

    bargaining power as well.

    - Economic legalization so as to increase domestic productivity and 

    export volume.

    - Developing countries should process their primary products which adds 

    value to them thus more foreign exchange earnings.

    - Labour intensive industries should be established, because labour is 
    cheaper in Rwanda, these industries can be set up at lower cost. The 

    products of these industries can be exported.

    - Reduction in export duties which makes developing countries’ 
    export competitive in the international market. Foreigners will prefer to 

    import from developing countries because of low prices.

    - Joint Venture: Establishing industries with joint venture of foreign 
    investors can also push up the export sector. The products of these 

    industries can be sold in the foreign market.

    - Import of Only Essential Items: Only essential items should be 
    imported which are needed for our industrial production. Import of 
    luxuries should be banned. People should be educated to come out from 

    the complex of foreign goods.

    - Infrastructural development: Rehabilitate and develop socio-economic
     infrastructure to increase production and exchange of goods 
    and services across national borders to increase foreign exchange 

    earnings.

    - Exchange Control so to minimize the imports. Exchange control should 
    be followed, so that there is no wastage of foreign exchange to import of 

    un-necessary commodities and luxuries.

    Application activity 4.3

    Analyse the impact of BOP problem in developing nations’ economies.

    Skills Lab

    Based on the knowledge, understanding and skills gained from this unit, 
    as a business club in your school, make a financial statement at the end 
    of the term showing your business transactions, based on the double 
    entry basis. From the accountability, identify whether there is a surplus or 
    shortage; in case of any position, describe how you will be able to dispose 

    it off so as to attain equilibrium.

    End unit assesment

    1. a) To what extent is inflation a cause of BOP in LDCs.

    b) What policy measure would you suggest to reduce BOP problems in 

    Rwanda?

    2. (a) What fiscal and monetary measures may be employed to reduce 

    inflationary pressures on the external balance of payments? 

     (b) What is the relationship between the domestic economy and the 

    balance of payments?

    3. Balance of payments must always “balance”. With reference to your 
    country, explain the
    Existence of either “favourable or unfavourable” balance of payments 

    position.

    ◄UNIT 3:FREE TRADE AND TRADE PROTECTIONISMUNIT 5:EXCHANGE RATES.►