Unit 4 INTERNATIONAL TRADE Balance of Payment The
Unit 4 INTERNATIONAL TRADE
Balance of Payment � The balance of payments is a consolidated account of the receipts and payments from and to other countries arising out of all economic transactions during the course of a year. � Balance of payments refers to the recording of all economic transactions of a given country with rest of the world. Each country has got to enter into economic transactions with other countries of the world. As a result of such transactions, it receives payments to other countries. Balance of Payments is a statement of accounts of these receipts and payments.
Definition � According to Kindleberger “The balance of payments of a country is a systematic record of all economic transactions between its residents and residents of foreign countries. ” � According to Benham “Balance of payments of a country is record of the monetary transactions over a period of time with the rest of the world”.
Features of Balance of Payments � Systematic Record � Fixed Period of Time � Comprehensiveness � Double entry System � Adjustment of Differences � All Items Government and Non Government.
Components of BOP Accounts �The Current Account �The Capital Account �Statistical Discrepancy Errors and Omi ssions �The Official Reserve Account
Causes of unfavourable balance of payment of India � Import of Machinery � Import of War equipments � Price disequilibrium � Expenditure on Embassies � Foreign Competition � Increase in price of Crude Oil � Payments of interest on foreign Debts � Less growth in Exports � Gulf War � Disintegration of USSR
Measures to correct disequilibrium in the Balance of Payments � Promotion of Exports � Increase in Production � Trade Agreements � Encouragement to Foreign Investment � Attraction to Foreign Tourists � Devaluation of Indian Currency � Deflation � Restriction on Imports � Import Substitution
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