Categories of Balance-of-Payments in Saudi Arabia
The Kingdom of Saudi Arabia’s (KSA) balance of payments is a mandatory category that can contain the necessary records of all critical payments made by country residents. This element is consistent with the concept of the International Monetary Fund (IMF) classification, which means that the payment recording system correctly records financial activities (Carbaugh, 2019). This parameter is divided into several main categories, the first of which is the current account.
This account is designed to record goods exported and imported into the country and some transfers between countries (Carbaugh, 2019). Since KSA is a significant oil exporter, this balance is an essential parameter for the country. The second characteristic is the capital account, which records trade relations with the country’s partners and is based on the principle of capital transfers (Carbaugh, 2019).
Additionally, this category may include investments made by external parties within the country. The third parameter in the balance of payments context is the financial account, designed to accommodate the cross-border flow of investment funds. In addition, this financial section is intended to reflect any changes in the country’s financial assets.
Foreign Exchange: Understanding Derived Supply and Demand
The supply and demand of foreign currency are derived from schedules since they are obtained based on basic transactions carried out in goods or services between citizens of KSA and other countries. This can also be explained through international economic theory, according to which trade between representatives of different countries is one of the main aspects of the relationship between countries (Carbaugh, 2019).
Thus, foreign currency exchange is an imperative primary action that people perform for full-fledged trade between countries. This explains how the demand for foreign money arises from the volume of goods and services flowing through international trade corridors. Tourism plays a significant role in determining supply and demand as derived schedules, encouraging people to exchange money to use services in other countries. This is an imperative aspect for implementing financial flows and transfers between various actors in other countries and tourists who come to KSA.
Trade Balance: Surplus, Deficit, and Their Implications
A surplus for the trade balance of the current account and goods and services means that the total volume of exports from a country exceeds imports. Thus, a deficit arises from the opposite when a country begins to purchase more products and services than it can provide for international trade. The trade balance reflects the difference between these concepts and determines the success of international trade (Carbaugh, 2019).
Impact of Trade Balances on Saudi Arabia’s Economy
This may affect trade in Saudi Arabia by ensuring that the government maintains a surplus for trade to benefit the country. This could increase employment in the country and improve overall economic growth. In turn, if there is a shortage in any of the categories under discussion, this will signal that the country is overly dependent on imported goods (Elhassan, 2019). This condition can gradually weaken the country’s economic potential, leading to a lack of funds for internal needs.
References
Carbaugh, R. (2019). International economics (17th ed.). Cengage Learning, Inc.
Elhassan, O. M. (2019). Obstacles and problems facing the financing of small and medium enterprises in KSA. Journal of Finance and Accounting, 7(5), 168-183. Web.