Question

An additional means of reducing merchandise trade deficits is to implement exchange controls, thereby matching export payments with import payments. This solution does not have any real cost and is also without risk and uncertainty.
A) Type:True or False
B) Points awarded:1.00 / 1.00
C) Your answer(s):•False
D) Correct answer(s):True False

Answer 1

Answer:

False

Explanation:

This type of exchange control is called a payment arrangement, where a firm exporting from country A to B, must also import goods from country B to A in the same amount as the original export transaction.

The problem with this type of control is that a company is forced to buy something it probably doesn't need or doesn't sell, therefore some companies may not participate in foreign trade under this conditions.

A few years ago in Argentina this policy was very strict and some weird transactions happened. For example, BMW had to export olive oil in order to be able to import cars and suvs. Many companies that needed to buy equipment had to use intermediary firms that exported wine, wheat, corn, minerals, soy bean, etc.. Those additional transactions made the imports more expensive, so foreign trade was reduced to only the most basic necessities.