This document provides information about balance of payments (BOP) including:
- BOP is a systematic record of all economic transactions between a country and rest of world, including exports/imports of goods and services, as well as capital and financial flows.
- It has two main components - the current account which covers trade in goods and services, and the capital account which covers financial flows. It also includes unilateral transfers.
- A country aims to maintain a balanced BOP through various monetary and non-monetary policy measures that can influence exchange rates, imports/exports, and capital flows.
The document provides information about terms of trade including:
- Terms of trade measures the price of a country's exports relative to its imports. It is calculated as the index of export prices divided by the index of import prices.
- Types of terms of trade include net barter, gross barter, income, single factorial, double factorial, real cost, and utility terms of trade. Each type has strengths and limitations in measuring trade.
- Factors influencing terms of trade include the elasticity of demand and supply for exports and imports, as well as the relative size of demand for exports and imports. Changes in terms of trade can impact standards of living, import prices, and a country's balance of payments.
The document discusses the balance of payments (BOP) of a country. It defines BOP as a systematic record of all economic transactions between a country and the rest of the world. The BOP has three components - the current account, capital account, and official settlements account. The current account covers exports and imports of goods and services. The capital account covers financial flows. Disequilibriums in the BOP can be corrected through automatic measures like changes in exchange rates or deliberate measures like trade policy changes and monetary policy tools.
This document provides information about a seminar presentation on the balance of payments. It defines the balance of payments as a systematic record of all economic transactions between residents of a country and the rest of the world. It discusses the key components of the balance of payments including the current account, capital account, and official reserve account. It also covers topics such as balance of payments equilibrium and disequilibrium, and causes of imbalance.
The document provides information about balance of payments (BOP):
1. BOP is a systematic record of all economic transactions between a country and the rest of the world over a period of time, recording inflows and outflows of foreign exchange.
2. The BOP account has two sides - credits for inflows of foreign exchange and debits for outflows. It is prepared using double-entry bookkeeping.
3. The current account records trade in goods and services as well as unilateral transfers, while the capital account records changes in financial assets and liabilities with the rest of the world.
4. The BOP always balances as total receipts must equal total payments. Surpluses
The document discusses the concept of balance of trade. It defines balance of trade as the difference between a country's imports and exports over a period of time. A positive balance of trade occurs when exports are greater than imports, while a negative balance happens when imports are greater than exports. The document also examines the importance of balance of trade, types of trade, factors that can affect a country's balance of trade, and provides examples of Pakistan's balance of trade over time.
Balance of payment concept, components and trends shivakumar patil
India recorded a trade deficit of $5.07 billion in March 2016, significantly lower than the $11.39 billion deficit in the same month of the previous year. This is the lowest monthly trade deficit since March 2011. Exports declined 5.47% year-over-year while imports fell 21.56% due to lower oil and non-oil imports. For the entire 2015-2016 fiscal year, India's trade deficit narrowed to $118.5 billion from $137.7 billion in the prior year as exports decreased 15.8% and imports fell 15.28%.
This document discusses the convertibility of the Indian rupee, including its history and recommendations from committees on adopting full capital account convertibility. It explains that the rupee is currently partially convertible on the capital account and fully convertible on the current account. Two committees, the Tarapore Committee in 1997 and 2006, made recommendations on introducing capital account convertibility in phases. However, the document notes that India still needs to strengthen its fundamentals like education, healthcare and infrastructure before fully opening up to potential financial volatility from capital account convertibility.
A fantastic PPT on balance of payments. The PPT includes a complete of the meaning and various concepts of balance of payments. It also discusses about the type of transactions recorded in BOP and various types of accounts.
The document provides information about terms of trade including:
- Terms of trade measures the price of a country's exports relative to its imports. It is calculated as the index of export prices divided by the index of import prices.
- Types of terms of trade include net barter, gross barter, income, single factorial, double factorial, real cost, and utility terms of trade. Each type has strengths and limitations in measuring trade.
- Factors influencing terms of trade include the elasticity of demand and supply for exports and imports, as well as the relative size of demand for exports and imports. Changes in terms of trade can impact standards of living, import prices, and a country's balance of payments.
The document discusses the balance of payments (BOP) of a country. It defines BOP as a systematic record of all economic transactions between a country and the rest of the world. The BOP has three components - the current account, capital account, and official settlements account. The current account covers exports and imports of goods and services. The capital account covers financial flows. Disequilibriums in the BOP can be corrected through automatic measures like changes in exchange rates or deliberate measures like trade policy changes and monetary policy tools.
This document provides information about a seminar presentation on the balance of payments. It defines the balance of payments as a systematic record of all economic transactions between residents of a country and the rest of the world. It discusses the key components of the balance of payments including the current account, capital account, and official reserve account. It also covers topics such as balance of payments equilibrium and disequilibrium, and causes of imbalance.
The document provides information about balance of payments (BOP):
1. BOP is a systematic record of all economic transactions between a country and the rest of the world over a period of time, recording inflows and outflows of foreign exchange.
2. The BOP account has two sides - credits for inflows of foreign exchange and debits for outflows. It is prepared using double-entry bookkeeping.
3. The current account records trade in goods and services as well as unilateral transfers, while the capital account records changes in financial assets and liabilities with the rest of the world.
4. The BOP always balances as total receipts must equal total payments. Surpluses
The document discusses the concept of balance of trade. It defines balance of trade as the difference between a country's imports and exports over a period of time. A positive balance of trade occurs when exports are greater than imports, while a negative balance happens when imports are greater than exports. The document also examines the importance of balance of trade, types of trade, factors that can affect a country's balance of trade, and provides examples of Pakistan's balance of trade over time.
Balance of payment concept, components and trends shivakumar patil
India recorded a trade deficit of $5.07 billion in March 2016, significantly lower than the $11.39 billion deficit in the same month of the previous year. This is the lowest monthly trade deficit since March 2011. Exports declined 5.47% year-over-year while imports fell 21.56% due to lower oil and non-oil imports. For the entire 2015-2016 fiscal year, India's trade deficit narrowed to $118.5 billion from $137.7 billion in the prior year as exports decreased 15.8% and imports fell 15.28%.
This document discusses the convertibility of the Indian rupee, including its history and recommendations from committees on adopting full capital account convertibility. It explains that the rupee is currently partially convertible on the capital account and fully convertible on the current account. Two committees, the Tarapore Committee in 1997 and 2006, made recommendations on introducing capital account convertibility in phases. However, the document notes that India still needs to strengthen its fundamentals like education, healthcare and infrastructure before fully opening up to potential financial volatility from capital account convertibility.
A fantastic PPT on balance of payments. The PPT includes a complete of the meaning and various concepts of balance of payments. It also discusses about the type of transactions recorded in BOP and various types of accounts.
This document discusses free trade and protectionism in economics. It defines free trade as a policy without tariffs or other trade barriers between countries. The advantages listed include comparative cost advantage, increased factor earnings, cheaper imports, an enlarged market, competition, and greater welfare. However, the document also notes arguments against free trade such as imperfect competition and one-sided development. Protectionism is then defined as encouraging domestic industries through subsidies or tariffs on foreign goods. The document provides several economic and non-economic arguments for protectionism, such as terms of trade and infant industries, as well as defense, patriotism, and preservation of certain industries. It concludes by acknowledging some of the difficulties in assessing and implementing these policies.
The document summarizes the Heckscher-Ohlin (H-O) theory of international trade. The H-O theory states that countries will export goods that use their abundant and cheap factors of production intensively and import goods that use their scarce factors intensively. It assumes countries differ in their endowments of capital and labor. The theory shows that capital-abundant countries will export and produce capital-intensive goods, while labor-abundant countries will export and produce labor-intensive goods. The theory represents an improvement over previous theories in explaining the basis of trade between countries within a general equilibrium framework.
Meeting 4 - Stolper - Samuelson theorem (International Economics)Albina Gaisina
The document discusses the Stolper-Samuelson theorem, which states that a decrease in the price of a good will lead to a decrease in the return to the factor that is used intensively in the production of that good. It will conversely lead to an increase in the return to the other factor. The theorem is based on assumptions of perfect competition and factor mobility. It predicts that increased trade with developing countries likely contributed to rising wage inequality in skilled countries. While trade increases overall welfare, it benefits some factors more than others according to their intensity of use.
The document discusses trade agreements and regional trade agreements. It provides examples of major regional trade agreements like the EU, NAFTA, and ASEAN. It also explains different levels of economic integration between countries, from free trade areas to customs unions and single markets. A customs union like the EU abolishes tariffs between members but sets a common external tariff. It can lead to both trade creation and trade diversion effects.
BOP or Balance of International Payments is the systematic and summary record of a country’s economic and financial transactionswith the rest of the worldover a period of time. As per IMF, BOP is a statistical statement for a given period showing: (a) transactions in goods & services and income between an economy and the rest of the world; (b) changes of ownership and other changes in that country’s monetary gold, SDRs, and claims on and liabilities to the rest of the world; and (c) unrequited transfersand counterpart entries that are needed to balance, in the accounting sense any entries for the foregoing transactions and changes which are not mutually offsetting. – IMF, Balance of Payments Manual.
Determination of exchange rate chapter 6Nayan Vaghela
Determination of exchange rate, mint par theory, balance of payment theory, Purchasing power parity theory, Absolute version and relative version, Criticisms
The document discusses India's balance of payments over the past 10 years. It defines the balance of payments and its key components: current account, capital account, and official reserves account. The current account covers trade in goods and services and investment income. The capital account covers investment flows. The official reserves account covers assets like gold and foreign currencies. Recent trends show India running a current account deficit from 2004-05 onward, with the deficit peaking in 2012-13 at 4.8% of GDP. Measures to address imbalances include export promotion, import restrictions, and managing the exchange rate. Quarterly data from 2014-2016 shows the current account deficit improving but still in deficit.
Brief PPT on Balance of payment Vs Balance of TradeShubham Parsekar
The ppt is based on Balance of payment and Balance of trade, their meaning ,factors affecting them and difference between both i.e BOP & BOT.
i hope this presentation will be helpful to you , as everything is tried to fit in these slides. i suggest everyone to just go through the economics text book and gain more insights if one is very much interested in it.
please like the presentation and comment below your views about it.
follow me on slideshare for more informative power point presentations.
foreign trade as an engine of economic growthMitikaAnjel
Foreign trade acts as an "engine" of economic growth in three key ways: 1) It enlarges a country's market for exports, leading to greater production and utilization of resources; 2) Expanding exports provides more employment opportunities and economies of scale, lowering costs; 3) Access to global markets encourages innovation as businesses compete with international counterparts, improving efficiency and productivity. For example, the opening of the Suez Canal increased India's exports of commercial crops like cotton and tea, fueling economic growth. Export processing zones also create jobs and incomes, stimulating demand and further domestic manufacturing. Overall, specialization, competition and technological adoption spurred by foreign trade can power economic expansion.
The document summarizes David Ricardo's theory of comparative advantage. It explains that according to Ricardo, countries can benefit from trade even if they do not have an absolute advantage in producing goods, as long as they have a comparative advantage in at least one good. This is illustrated using data showing that while England has higher absolute costs of production than Portugal for both wine and cloth, it has a lower relative production cost for cloth, giving it a comparative advantage. International trade allows both countries to specialize in the goods they have a comparative advantage in, increasing total world output.
The foreign exchange market or forex market as it is often called is the market in which currencies are traded.
Currency Trading is the world’s largest market consisting of almost trillion in daily volumes
The market continues to rapidly grow. Not only is the forex market the largest market in the world, but it is also the most liquid, differentiating it from the other markets.
There is no central marketplace for the exchange of currency, but instead the trading is conducted over-the-counter.
This decentralization of the market allows traders to choose from a number of different dealers to make trades with and allows for comparison of prices. Typically, the larger a dealer is the better access they have to pricing at the largest banks in the world, and are able to pass that on to their clients.
The spot currency market is open twenty-four hours a day, five days a week, with currencies being traded around the world in all of the major financial centers.
All trades that take place in the foreign exchange market involve the buying of one currency and the selling of another currency simultaneously. This is because the value of one currency is determined by its comparison to another currency.
The first currency of a currency pair is called the “base currency,” while the second currency is called the counter currency. The currency pair shows how much of the counter currency is needed to purchase one unit of the base currency.
Currency pairs can be thought of as a single unit that can be bought or sold. When purchasing a currency pair, the base currency is being bought, while the counter currency is being sold.
Forex Capital Markets (FXCM) is an online currency trading firm that offers a free demo account to traders who are new and interested in the foreign exchange market.
It allows you to experience every step of currency trading including choosing currency pairs, deciding how much risk to take, tracking the time and dates of placed trades, deciding how long to stay in the trade, and when to exit the trade. It also allows the placing of stop and limit orders on trades.
Information about trading and specifically about how to use the online trading platform can be found on the FXCM webpage. In addition, FXCM offers FREE interactive online seminars that are extremely useful to both new and experienced currency traders.
Characteristics of foreign exchange
Its huge trading volume representing the largest asset class in the world leading to high liquidity;
Its geographical dispersion;
Its continuous operation: 24 hours a day except weekends, i.e., trading from 20:15 GMT on Sunday until 22:00 GMT Friday;
The variety of factors that affect exchange rates;
The low margins of relative profit compared with other markets of fixed income;
The use of leverage to enhance profit and loss margins and with respect to account size.
This document provides an overview of a country's balance of payments. It defines the balance of payments as a systematic record of all economic transactions between residents of a country and foreign countries over a period of time, usually annually. It notes that the balance of payments has two sides, credits and debits, with receipts recorded on the credit side and payments on the debit side. It also distinguishes between different types of transactions that affect the current account and capital account and discusses using balance of payments data to analyze a country's economic strength and identify needed policy measures.
Corrective measures of BOP disequilibriumKunthavai ..
To correct a balance of payments deficit, a country has monetary and trade measures available. Monetary measures include deflation, devaluation, exchange rates, and exchange depreciation. Trade measures involve export promotions and import controls such as quotas. Deflation lowers prices to make exports cheaper abroad. Devaluation reduces the value of the home currency to boost exports and curb imports. Quotas limit the quantity of goods that can be imported to reduce the deficit and improve the balance of payments.
An offer curve shows the quantities of imports and exports that a country is willing to trade at different relative prices (terms-of-trade). It combines a country's demand for imports and supply of exports. Offer curves can be drawn for two countries trading two goods to determine the trading equilibrium and equilibrium terms-of-trade. The equilibrium occurs where the quantities exported and imported are equal for both goods and countries.
Tariffs are taxes imposed on imported or exported goods. There are several types of tariffs including specific tariffs (fixed amount per unit), ad valorem tariffs (fixed percentage of value), and compound tariffs (combination of specific and ad valorem). Tariffs can be used for revenue generation or protecting domestic industries. Quotas limit the quantity of goods that can be imported, and include tariff quotas, unilateral quotas negotiated bilaterally. Import licensing systems administer quota regulations by requiring licenses to import goods.
This document provides an overview of balance of payments (BOP) accounting. It defines BOP as a systematic record of all economic transactions between a country and the rest of the world. It notes that BOP has three main components: the current account balance, capital account balance, and the overall BOP. The current account tracks goods/services exports and imports, while the capital account tracks financial flows. The document also discusses factors that can cause BOP disequilibriums and monetary/non-monetary policy tools to correct imbalances, such as devaluation, export promotion, and tariffs.
The document defines exchange rates as the rate at which one currency can be exchanged for another. Exchange rates are determined in the foreign exchange market, where currencies are bought and sold. The foreign exchange market serves several functions, including transferring funds between countries and providing short-term credit to importers. Exchange rates are influenced by factors such as inflation rates, interest rates, current account deficits, public debt levels, terms of trade, and political/economic stability. Various theories aim to determine exchange rates based on these economic fundamentals.
Balance of Payment Disequilibrium and CausesNeema Gladys
1.Balance of Payment
The balance of payment of a country is a systematic accounting record of all economic transactions during a given period of time between the residents of the country and residents of foreign countries.
2.Componets of BOP
Current Account
It includes imports and exports of goods and services and unilateral transfer of goods and services.
Capital Account
Under this are grouped transactions leading to changes in foreign assets and liabilities of the country.
3. Accounting Treatment of Items (Debit and Credit Items)
Any item which gives rise to a sale of foreign exchange (an inflow) is recorded as a credit item (+) in the accounts e.g. export of goods and services
Any item which gives rise to the purchase of foreign exchange (an outflow) is recorded as a debit item (-) in the accounts e.g imports of goods and services.
4. BOP Disequilibrium
BOP is a double entry accounting record, then apart from errors and omissions, it must always balance.
The BOP deficit or surplus indicate imbalance in the BOP.
This imbalance is interpreted as BOP Disequilibrium.
A country’s balance of payments is said to be in disequilibrium when its autonomous receipts (credits) are not equal to its autonomous payments (debits).
5.BOP Deficit
A deficit or an unfavorable balance exists when the value of autonomous debit items exceeds the value of autonomous credit items.
6. BOP Surplus
A surplus or a favourable balance exists when the value of autonomous credit items exceeds the value of autonomous debit items.
The document discusses India's balance of payments from pre-1991 to post-reform periods. It notes that pre-1991 saw persistent balance of payments deficits due to large-scale machinery imports to develop basic industries and rising oil prices. 1976-80 was a brief surplus period due to worker remittances and export growth. 1980-91 saw severe deficits exceeding $16 billion by 1991. Post-1991 reforms led to surpluses due to invisibles earnings, external borrowings, and foreign investment.
BOP Components: Current Account, Capital Account and Reserve Account; Disequilibrium of BOP; Factors Affecting BOP and Methods of Correcting BOP Disequilibrium
The balance of payments document discusses key aspects of a country's balance of payments (BOP) account including:
- The BOP uses double-entry bookkeeping and has debit and credit sides to record international transactions. It can be balanced, in surplus, or in deficit.
- The BOP provides information to governments about international trade and capital flows so they can implement appropriate policies.
- It is a systematic record of all economic transactions between residents of a country and foreign countries over a period, usually a year. These transactions include exports/imports of goods and services, as well as capital account flows.
This document discusses free trade and protectionism in economics. It defines free trade as a policy without tariffs or other trade barriers between countries. The advantages listed include comparative cost advantage, increased factor earnings, cheaper imports, an enlarged market, competition, and greater welfare. However, the document also notes arguments against free trade such as imperfect competition and one-sided development. Protectionism is then defined as encouraging domestic industries through subsidies or tariffs on foreign goods. The document provides several economic and non-economic arguments for protectionism, such as terms of trade and infant industries, as well as defense, patriotism, and preservation of certain industries. It concludes by acknowledging some of the difficulties in assessing and implementing these policies.
The document summarizes the Heckscher-Ohlin (H-O) theory of international trade. The H-O theory states that countries will export goods that use their abundant and cheap factors of production intensively and import goods that use their scarce factors intensively. It assumes countries differ in their endowments of capital and labor. The theory shows that capital-abundant countries will export and produce capital-intensive goods, while labor-abundant countries will export and produce labor-intensive goods. The theory represents an improvement over previous theories in explaining the basis of trade between countries within a general equilibrium framework.
Meeting 4 - Stolper - Samuelson theorem (International Economics)Albina Gaisina
The document discusses the Stolper-Samuelson theorem, which states that a decrease in the price of a good will lead to a decrease in the return to the factor that is used intensively in the production of that good. It will conversely lead to an increase in the return to the other factor. The theorem is based on assumptions of perfect competition and factor mobility. It predicts that increased trade with developing countries likely contributed to rising wage inequality in skilled countries. While trade increases overall welfare, it benefits some factors more than others according to their intensity of use.
The document discusses trade agreements and regional trade agreements. It provides examples of major regional trade agreements like the EU, NAFTA, and ASEAN. It also explains different levels of economic integration between countries, from free trade areas to customs unions and single markets. A customs union like the EU abolishes tariffs between members but sets a common external tariff. It can lead to both trade creation and trade diversion effects.
BOP or Balance of International Payments is the systematic and summary record of a country’s economic and financial transactionswith the rest of the worldover a period of time. As per IMF, BOP is a statistical statement for a given period showing: (a) transactions in goods & services and income between an economy and the rest of the world; (b) changes of ownership and other changes in that country’s monetary gold, SDRs, and claims on and liabilities to the rest of the world; and (c) unrequited transfersand counterpart entries that are needed to balance, in the accounting sense any entries for the foregoing transactions and changes which are not mutually offsetting. – IMF, Balance of Payments Manual.
Determination of exchange rate chapter 6Nayan Vaghela
Determination of exchange rate, mint par theory, balance of payment theory, Purchasing power parity theory, Absolute version and relative version, Criticisms
The document discusses India's balance of payments over the past 10 years. It defines the balance of payments and its key components: current account, capital account, and official reserves account. The current account covers trade in goods and services and investment income. The capital account covers investment flows. The official reserves account covers assets like gold and foreign currencies. Recent trends show India running a current account deficit from 2004-05 onward, with the deficit peaking in 2012-13 at 4.8% of GDP. Measures to address imbalances include export promotion, import restrictions, and managing the exchange rate. Quarterly data from 2014-2016 shows the current account deficit improving but still in deficit.
Brief PPT on Balance of payment Vs Balance of TradeShubham Parsekar
The ppt is based on Balance of payment and Balance of trade, their meaning ,factors affecting them and difference between both i.e BOP & BOT.
i hope this presentation will be helpful to you , as everything is tried to fit in these slides. i suggest everyone to just go through the economics text book and gain more insights if one is very much interested in it.
please like the presentation and comment below your views about it.
follow me on slideshare for more informative power point presentations.
foreign trade as an engine of economic growthMitikaAnjel
Foreign trade acts as an "engine" of economic growth in three key ways: 1) It enlarges a country's market for exports, leading to greater production and utilization of resources; 2) Expanding exports provides more employment opportunities and economies of scale, lowering costs; 3) Access to global markets encourages innovation as businesses compete with international counterparts, improving efficiency and productivity. For example, the opening of the Suez Canal increased India's exports of commercial crops like cotton and tea, fueling economic growth. Export processing zones also create jobs and incomes, stimulating demand and further domestic manufacturing. Overall, specialization, competition and technological adoption spurred by foreign trade can power economic expansion.
The document summarizes David Ricardo's theory of comparative advantage. It explains that according to Ricardo, countries can benefit from trade even if they do not have an absolute advantage in producing goods, as long as they have a comparative advantage in at least one good. This is illustrated using data showing that while England has higher absolute costs of production than Portugal for both wine and cloth, it has a lower relative production cost for cloth, giving it a comparative advantage. International trade allows both countries to specialize in the goods they have a comparative advantage in, increasing total world output.
The foreign exchange market or forex market as it is often called is the market in which currencies are traded.
Currency Trading is the world’s largest market consisting of almost trillion in daily volumes
The market continues to rapidly grow. Not only is the forex market the largest market in the world, but it is also the most liquid, differentiating it from the other markets.
There is no central marketplace for the exchange of currency, but instead the trading is conducted over-the-counter.
This decentralization of the market allows traders to choose from a number of different dealers to make trades with and allows for comparison of prices. Typically, the larger a dealer is the better access they have to pricing at the largest banks in the world, and are able to pass that on to their clients.
The spot currency market is open twenty-four hours a day, five days a week, with currencies being traded around the world in all of the major financial centers.
All trades that take place in the foreign exchange market involve the buying of one currency and the selling of another currency simultaneously. This is because the value of one currency is determined by its comparison to another currency.
The first currency of a currency pair is called the “base currency,” while the second currency is called the counter currency. The currency pair shows how much of the counter currency is needed to purchase one unit of the base currency.
Currency pairs can be thought of as a single unit that can be bought or sold. When purchasing a currency pair, the base currency is being bought, while the counter currency is being sold.
Forex Capital Markets (FXCM) is an online currency trading firm that offers a free demo account to traders who are new and interested in the foreign exchange market.
It allows you to experience every step of currency trading including choosing currency pairs, deciding how much risk to take, tracking the time and dates of placed trades, deciding how long to stay in the trade, and when to exit the trade. It also allows the placing of stop and limit orders on trades.
Information about trading and specifically about how to use the online trading platform can be found on the FXCM webpage. In addition, FXCM offers FREE interactive online seminars that are extremely useful to both new and experienced currency traders.
Characteristics of foreign exchange
Its huge trading volume representing the largest asset class in the world leading to high liquidity;
Its geographical dispersion;
Its continuous operation: 24 hours a day except weekends, i.e., trading from 20:15 GMT on Sunday until 22:00 GMT Friday;
The variety of factors that affect exchange rates;
The low margins of relative profit compared with other markets of fixed income;
The use of leverage to enhance profit and loss margins and with respect to account size.
This document provides an overview of a country's balance of payments. It defines the balance of payments as a systematic record of all economic transactions between residents of a country and foreign countries over a period of time, usually annually. It notes that the balance of payments has two sides, credits and debits, with receipts recorded on the credit side and payments on the debit side. It also distinguishes between different types of transactions that affect the current account and capital account and discusses using balance of payments data to analyze a country's economic strength and identify needed policy measures.
Corrective measures of BOP disequilibriumKunthavai ..
To correct a balance of payments deficit, a country has monetary and trade measures available. Monetary measures include deflation, devaluation, exchange rates, and exchange depreciation. Trade measures involve export promotions and import controls such as quotas. Deflation lowers prices to make exports cheaper abroad. Devaluation reduces the value of the home currency to boost exports and curb imports. Quotas limit the quantity of goods that can be imported to reduce the deficit and improve the balance of payments.
An offer curve shows the quantities of imports and exports that a country is willing to trade at different relative prices (terms-of-trade). It combines a country's demand for imports and supply of exports. Offer curves can be drawn for two countries trading two goods to determine the trading equilibrium and equilibrium terms-of-trade. The equilibrium occurs where the quantities exported and imported are equal for both goods and countries.
Tariffs are taxes imposed on imported or exported goods. There are several types of tariffs including specific tariffs (fixed amount per unit), ad valorem tariffs (fixed percentage of value), and compound tariffs (combination of specific and ad valorem). Tariffs can be used for revenue generation or protecting domestic industries. Quotas limit the quantity of goods that can be imported, and include tariff quotas, unilateral quotas negotiated bilaterally. Import licensing systems administer quota regulations by requiring licenses to import goods.
This document provides an overview of balance of payments (BOP) accounting. It defines BOP as a systematic record of all economic transactions between a country and the rest of the world. It notes that BOP has three main components: the current account balance, capital account balance, and the overall BOP. The current account tracks goods/services exports and imports, while the capital account tracks financial flows. The document also discusses factors that can cause BOP disequilibriums and monetary/non-monetary policy tools to correct imbalances, such as devaluation, export promotion, and tariffs.
The document defines exchange rates as the rate at which one currency can be exchanged for another. Exchange rates are determined in the foreign exchange market, where currencies are bought and sold. The foreign exchange market serves several functions, including transferring funds between countries and providing short-term credit to importers. Exchange rates are influenced by factors such as inflation rates, interest rates, current account deficits, public debt levels, terms of trade, and political/economic stability. Various theories aim to determine exchange rates based on these economic fundamentals.
Balance of Payment Disequilibrium and CausesNeema Gladys
1.Balance of Payment
The balance of payment of a country is a systematic accounting record of all economic transactions during a given period of time between the residents of the country and residents of foreign countries.
2.Componets of BOP
Current Account
It includes imports and exports of goods and services and unilateral transfer of goods and services.
Capital Account
Under this are grouped transactions leading to changes in foreign assets and liabilities of the country.
3. Accounting Treatment of Items (Debit and Credit Items)
Any item which gives rise to a sale of foreign exchange (an inflow) is recorded as a credit item (+) in the accounts e.g. export of goods and services
Any item which gives rise to the purchase of foreign exchange (an outflow) is recorded as a debit item (-) in the accounts e.g imports of goods and services.
4. BOP Disequilibrium
BOP is a double entry accounting record, then apart from errors and omissions, it must always balance.
The BOP deficit or surplus indicate imbalance in the BOP.
This imbalance is interpreted as BOP Disequilibrium.
A country’s balance of payments is said to be in disequilibrium when its autonomous receipts (credits) are not equal to its autonomous payments (debits).
5.BOP Deficit
A deficit or an unfavorable balance exists when the value of autonomous debit items exceeds the value of autonomous credit items.
6. BOP Surplus
A surplus or a favourable balance exists when the value of autonomous credit items exceeds the value of autonomous debit items.
The document discusses India's balance of payments from pre-1991 to post-reform periods. It notes that pre-1991 saw persistent balance of payments deficits due to large-scale machinery imports to develop basic industries and rising oil prices. 1976-80 was a brief surplus period due to worker remittances and export growth. 1980-91 saw severe deficits exceeding $16 billion by 1991. Post-1991 reforms led to surpluses due to invisibles earnings, external borrowings, and foreign investment.
BOP Components: Current Account, Capital Account and Reserve Account; Disequilibrium of BOP; Factors Affecting BOP and Methods of Correcting BOP Disequilibrium
The balance of payments document discusses key aspects of a country's balance of payments (BOP) account including:
- The BOP uses double-entry bookkeeping and has debit and credit sides to record international transactions. It can be balanced, in surplus, or in deficit.
- The BOP provides information to governments about international trade and capital flows so they can implement appropriate policies.
- It is a systematic record of all economic transactions between residents of a country and foreign countries over a period, usually a year. These transactions include exports/imports of goods and services, as well as capital account flows.
India's balance of payments witnessed improvements in 2009-10 as the global economic recovery was visible. Exports and imports both increased during the third quarter, with the trade deficit lower than the previous year. The current account deficit was marginally higher for April-December 2009 compared to the same period in 2008, due to a fall in invisibles surplus despite a lower trade deficit. Capital flows remained strong, led by FDI, portfolio investments, and trade credits. Foreign exchange reserves increased by $27.1 billion for the year, reaching $279.1 billion in March 2010. The turnaround in exports and continued capital inflows inflows buoyed India's external sector.
this PPT contains explanation of balance of payments. current account, capital account,official reserve account, equilibrium of bop are explained here in it.autonomous and accommodating items, bop and bot difference.
The document discusses the balance of payments of a country. It is a record of all economic transactions between a country and the rest of the world, including payments made (outflows) and received (inflows). The balance of payments has two main accounts - the current account, which records trade in goods and services, income, and transfers; and the capital account, which covers capital flows from private and government sources like foreign direct investment. When the current and capital accounts are not balanced, it affects a country's official foreign reserves.
The document discusses the balance of payments and balance of trade. It defines balance of payments as the record of all monetary transactions between a country and other countries, including capital flows, exports, imports and other payments. It has three components - current account, capital account and financial account. The current account covers short-term transactions while the capital account covers long-term international capital flows. Balance of trade is the difference between a country's exports and imports of goods, and is a component of the current account. It can be in surplus, deficit or balanced. The balance of payments provides a more complete picture of a country's economic status than just the balance of trade.
The balance of payments is a systematic record of all economic transactions between residents of a country and residents of foreign countries over a period of time. It includes visible items like exports and imports of goods, and invisible items like services. The balance of payments provides a more comprehensive picture than just the balance of trade. It has two main components - the current account, which covers trade in goods and services, and the capital account, which covers financial flows like investments and official transactions between governments. Autonomous items in the balance of payments refer to transactions undertaken for economic motives, while accommodating items balance out the account. Disequilibria can arise due to various economic, political, and social factors.
The balance of payments is a systematic record of all economic transactions between residents of a country and residents of foreign countries over a period of time. It includes visible items like exports and imports of goods, and invisible items like services. The balance of payments provides a more comprehensive picture than just the balance of trade. It has two main components - the current account, which covers trade in goods and services, and the capital account, which covers financial flows like investments and official transactions between governments. Autonomous items in the balance of payments refer to transactions undertaken for economic motives, while accommodating items balance out the account. Disequilibria can arise due to various economic, political, and social factors.
This document presents information about balance of payments. It defines balance of payments as a statement that records all monetary transactions between residents of a country and the rest of the world. It has three components - the current account, capital account, and financial account. The current account records trade in goods and services, while the capital and financial accounts record international capital transactions and flows of funds through assets. Maintaining a balanced balance of payments is important for a country's monetary policy and economic stability.
The balance of payments (BOP) of a country records all economic transactions between residents of that country and residents of other countries within a given period of time. The BOP has three components: the current account, which covers visible and invisible trade as well as income from investments; the capital account, which covers financial flows; and the reserve account, which covers transactions with the IMF. A country experiences a BOP deficit when total payments exceed total receipts, and a surplus when receipts exceed payments. Disequilibria can be corrected through various monetary and non-monetary policy measures that target exchange rates, exports, imports and capital flows.
The balance of payments (BOP) of a country records all economic transactions between residents of that country and residents of other countries within a given period of time. The BOP has three components: the current account, which covers visible and invisible trade as well as income from investments; the capital account, which covers financial flows; and the reserve account, which covers transactions with international institutions like the IMF. A country aims for a balanced BOP but may experience a surplus or deficit. Deficits can be addressed through various monetary and non-monetary policy measures that target exchange rates, exports, imports and capital flows.
The balance of payments records all economic transactions between a country and the rest of the world over a period of time. It includes visible items like exports and imports of goods, invisible items like services, and capital transfers. The balance of payments has a current account for trade in goods and services and a capital account for financial flows. A deficit or surplus in the balance of payments can be corrected through monetary measures like changing exchange rates or interest rates, or non-monetary measures like promoting exports and controlling imports.
The document discusses the concept of balance of payments, which refers to the systematic record of all economic transactions between a country and the rest of the world over a given period of time. It includes visible items like imports and exports of goods, invisible items like imports and exports of services, and capital transfers. The balance of payments aims to determine how much a country needs to receive from or pay to other countries, and what the overall balance position is. It can be in equilibrium, surplus, or deficit. The document outlines the key components, structure, and causes of disequilibrium in a country's balance of payments.
Balance of trade & Balance of paymentsKunthavai ..
The document discusses the balance of trade, balance of payments, and components of the balance of payments. It defines key terms like exports, imports, trade surplus, trade deficit. It explains that the balance of payments is a systematic record of all economic transactions between a country and foreign countries, including both visible and invisible transactions. It has a current account, capital account, unilateral payments account, and official settlements account. The current account tracks trade in goods and the capital account tracks financial flows. Together, the balance of payments aims to equalize total receipts and payments in international transactions for a country over a period of time.
Finance refers to the management of money and funds for activities. It involves planning, organizing and controlling the procurement and use of financial resources. International finance deals with monetary and economic relations between countries. It refers to managing the financial functions of international businesses. Key aspects of international finance include foreign exchange risk, political risk, market imperfections, and expanded investment opportunities from operating in multiple countries and currencies. The balance of payments accounts for and balances all economic transactions between a country and the rest of the world over a period of time. It is classified into the current, capital and official reserve accounts.
This document provides information about balance of payments and related concepts:
- It defines balance of payments as a record of all economic transactions between a country and the rest of the world over a period of time, including visible and invisible items as well as capital transfers.
- It explains the difference between balance of trade, which records only goods, and balance of payments, which includes goods, services, and capital transfers.
- It outlines the types of items included in balance of payments such as visible/invisible items and capital transfers.
The balance of payments records all economic transactions between a country and the rest of the world over a period of time. It includes visible items like exports and imports of goods, as well as invisible items like services. If receipts are greater than payments, the balance of payments is in surplus, while a deficit occurs when payments exceed receipts. Maintaining a balanced balance of payments is important for a country's economic stability. Various policy tools like exchange rate adjustments, import restrictions, export subsidies, and monetary and fiscal policies can be used to correct disequilibriums.
India's balance of payments often shows a deficit as the country requires imports of machinery, technology, and capital goods to fuel industrialization. In recent years, India's current account deficit has narrowed due to a contraction in imports outpacing the decline in exports. While FDI inflows have increased, portfolio investment has declined. Remittances from Indians overseas have also marginally decreased. Overall, India's foreign exchange reserves have seen a small accretion on balance of payments basis. Common reasons for India's poor export performance include high prices, quality issues, lack of marketing skills, inadequate promotion, and poor infrastructure.
India's balance of payments often shows a deficit as the country requires imports of machinery, technology, and capital goods to fuel industrialization. In recent years, India's current account deficit has narrowed due to a contraction in imports outpacing the decline in exports. While FDI inflows have increased, portfolio investment has declined. Remittances from Indians overseas have also marginally decreased. Overall, India's foreign exchange reserves have seen a small accretion on balance of payments basis. Common reasons for India's poor export performance include high prices, quality issues, lack of marketing skills, inadequate promotion, and poor infrastructure.
The balance of payments records all economic transactions between a country and the rest of the world over a period of time. It includes visible items like exports and imports of goods, as well as invisible items like services. It also includes capital transfers. The balance of payments aims to systematically record all these international transactions and ensure receipts and payments are balanced. A country may experience a surplus or deficit in its balance of payments depending on whether receipts from transactions exceed payments or vice versa. Disequilibria can be corrected through various monetary and non-monetary measures that target exchange rates, exports, imports and capital flows.
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2. Balance Of Payment : Definition RBI
•The balance of payments of a country is a systematic
record of all economic transactions between the
residents of a country and the rest of the world.
• It presents a classified record of all receipts on account of
goods exported, services rendered and capital received
by residents and payments made by them on account of
goods imported and services received from the capital
transferred to non-residents or foreigners.
3. Features
•It is a systematic record of all economic transactions
between one country and the rest of the world.
•It includes all transactions, visible as well as invisible.
•It relates to a period of time. Generally, it is an annual
statement.
•It adopts a double-entry book-keeping system. It has two
sides: credit side and debit side.
•Receipts are recorded on the credit side and payments on
the debit side.
4. Structure/Components of a BOP statement
•B.O.P. on Current account
• B.O.P. on Capital account
•Unilateral Payment accounts
• Official Settlement accounts
5. Current Account
Main Components
1.Export and Import of Goods (MerchandiseTransactions orVisible
Trade)
A major part of transactions in foreign trade is in the form of export and import of
goods (visible items).
Payment for import of goods is written on the negative side (debit items) and receipt
from exports is shown on the positive side (credit items). Balance of these visible
exports and imports is known as balance of trade (or trade balance).
2. Export and Import of Services (InvisibleTrade)
It includes a large variety of non- factor services (known as invisible items) sold and
purchased by the residents of a country, to and from the rest of the world. Payments
are either received or made to the other countries for use of these services.
6. Services are generally of three kinds:
• (a) Shipping,
• (b) Banking, and
• (c) Insurance.
Payments for these services are recorded on the negative side and receipts on the
positive side.
3. Unilateral or UnrequitedTransfers to and from abroad (One sided
Transactions)
Unilateral transfers include gifts, donations, personal remittances and other
‘one-way’ transactions.These refer to those receipts and payments, which take
place without any service in return. Receipt of unilateral transfers from rest of the
world is shown on the credit side and unilateral transfers to rest of the world on the
debit side.
7. 4.Income receipts and payments to and from abroad
It includes investment income in the form of interest, rent and
profits.
Current Account shows the Net Income.
Current Account records all the actual transactions of goods and
services which affect the income, output and employment of a
country. So, it shows the net income generated in the foreign sector.
• BOP on current account is a statement of actual receipts and
payments in short period.
8. Balance on Current Account
• In the current account, receipts from export of goods, services and
unilateral receipts are entered as credit or positive items and
payments for import of goods, services and unilateral payments are
entered as debit or negative items.
The net value of credit and debit balances is the balance on current
account.
• Surplus in current account arises when credit items are more than
debit items. It indicates net inflow of foreign exchange.
• Deficit in current account arises when debit items are more than
credit items. It indicates net outflow of foreign exchange
9. Capital Account
• Capital account of BOP records all those transactions, between the
residents of a country and the rest of the world, which cause a
change in the assets or liabilities of the residents of the country or
its government. It is related to claims and liabilities of financial
nature.
Capital Account is used to:
• (i) Finance deficit in current account; or
• (ii) Absorb surplus of current account.
• Capital account is concerned with financial transfers. So, it does not
have direct effect on income, output and employment of the
country.
10. Components of Capital Account
1. Borrowings and landings to and from abroad: It includes
• All transactions relating to borrowings from abroad by private sector,
government, etc. Receipts of such loans and repayment of loans by
foreigners are recorded on the positive (credit) side.
• All transactions of lending to abroad by private sector and
government. Lending abroad and repayment of loans to abroad is
recorded as negative or debit item.
2. Investments to and from abroad: It includes
Investments by rest of the world in shares of Indian companies, real
estate in India, etc. Such investments from abroad are recorded on the
positive (credit) side as they bring in foreign exchange.
11. • Investments by Indian residents in shares of foreign companies,
real estate abroad, etc. Such investments to abroad be recorded on
the negative (debit) side as they lead to outflow of foreign
exchange.
• 3. Change in Foreign Exchange Reserves
• The foreign exchange reserves are the financial assets of the
government held in the central bank.
• A change in reserves serves as the financing item in India’s BOP. So,
any withdrawal from the reserves is recorded on the positive
(credit) side and any addition to these reserves is recorded on the
negative (debit) side. change in reserves’ is recorded in the BOP
• It must be noted that ‘account and not ‘reserves’.
12. Balance on Capital Account
• The transactions, which lead to inflow of foreign exchange (like
receipt of loan from abroad, sale of assets or shares in foreign
countries, etc.), are recorded on the credit or positive side of
capital account.
• Similarly, transactions, which lead to outflow of foreign exchange
(like repayment of loans, purchase of assets or shares in foreign
countries, etc.), are recorded on the debit or negative side.
• The net value of credit and debit balances is the balance on capital
account.
13. • Surplus in capital account arises when credit items are more than
debit items. It indicates net inflow of capital.
• Deficit in capital account arises when debit items are more than
credit items. It indicates net outflow of capital.
UnilateralTransfers Account
It comprises of uni-directional transactions like ‘giving of gifts’.
Disaster relief, foreign aids, govt. grants, pension paid to and
received by Indian citizens for services rendered abroad.
14. Official Settlements Account
It represents official sales of foreign currencies and other
reserves to foreign countries or official purchase of foreign
currencies or other reserves from foreign countries.
Credits here are money received from official sale of
foreign currencies and reserves. Similarly,
Debits comprise of official purchases of foreign currencies and other
assets.
15. In addition to the above , there are two more elements in BOP,
‘Errors and Omissions’.
• The entries under this head relate mainly to leads and lags in reporting of
transactionsIt is the balancing item, which reflects the inability to record all
international transactions accurately.
The Reserve Account
• Three accounts: IMF, SDR, & Reserve and Monetary Gold are collectively called
asThe Reserve Account.
• The IMF account contains purchases (credits) and repurchase (debits) from
International Monetary Fund.
• Special Drawing Rights (SDRs) are a reserve asset created by IMF and allocated
from time to time to member countries. It can be used to settle international
payments between monetary authorities of two different countries.
16. Structure Of BOP
• Balance of payments is a complete record ofTotal Receipts and
Total Payments of a country in relation to other countries over a
given time period.
• Total Receipts are called CREDIT andTotal Payments are termed as
DEBIT.
• Credit side comprises of all those values received from foreign
countries. On the other hand, Debit side comprises of all the
payments made to other countries.
• It is maintained in a double entry book keeping system.
17. Structure Of BOP
CREDITS DEBITS
ITEMS OF CURRENTACCOUNT
• Export of Goods • Import of Goods
• Exports of Services • Import of Services
• UnilateralTransfer Receipts (gifts,
• indemnities from foreigners).
• UnilateralTransfer Payments (gifts,
• indemnities from foreigners).
• Income receipts. • Income payments.
ITEMS OF CAPITAL ACCOUNT
• Capital Receipts ( borrowings from capital
repayments by or sale of assets to
foreigners).
• Capital Payments ( lending to, capital
repayments to or purchase of assets from
foreigners).
18. Importance of Balance Of Payments
• BOP records all the transactions that create demand for and supply of a
currency.
• Judge economic and financial status of a country in the short-term
• BOP may confirm trend in economy’s international trade and
exchange rate of the currency.This may also indicate change or
reversal in the trend.
• This may indicate policy shift of the monetary authority (RBI) of the
country.
• BOP may confirm trend in economy’s international trade and
exchange rate of the currency.This may also indicate change or
reversal in the trend.
19. Balance ofTrade
• The difference between a country's imports and its exports.
Balance of trade is the largest component of a country's balance
of payments.
• Debit items include imports, foreign aid, domestic spending
abroad and domestic investments abroad.
• Credit items include exports, foreign spending in the domestic
economy and foreign investments in the domestic economy.
• When exports are greater than imports the BOT is favourable
and if imports are greater than exports then it is unfavourable
20. • Economists use BOT as a statistical tool to help them understand
the relative strength of a country's economy versus other
countries' economies and the flow of trade between nations.
• The balance of trade is also referred to as the trade balance or the
international trade balance.
• A trade surplus or deficit, taken on its own, is not necessarily a
viable indicator of an economy's health.
21. • Many people believe that trade deficit is unfavourable , bad.
• The numbers must be taken in context relative to the business
cycle and other economic indicators.
• In a recession, countries like to export more, creating jobs and
demand in the economy.
• In a strong expansion, countries prefer to import more,
providing price competition, which limits inflation without
increasing prices
• Trade deficit is not a good thing during a recession but may help
during expansion
22. Examples of Balance ofTrade
• There are countries where it is almost certain that a trade deficit will
occur. For example, the United States has had a trade deficit since
1976, in large part due to its imports of oil and consumer products.
• Conversely, China, a country that produces and exports many of
the world's consumable goods, has recorded a trade surplus since
1995.
• In 2015, the European Union, Germany, China and Japan all had very
large trade surpluses, while the United States, the United
Kingdom, Brazil, Australia and Canada had the largest trade
deficits.
23. Factors affecting BOT
A country's balance of trade is defined by its net exports (exports minus
imports) and is thus influenced by all of the factors that affect
international trade.
• These include factor endowments (labor, land and capital) and
productivity, barriers to trade, investment activity and fiscal policy.
Demand also affects the balance of trade.
• The cost of production (land, labor, capital, taxes, incentives, etc.) in
the exporting economy vis-à-vis those in the importing economy;
• The cost and availability of raw materials, intermediate goods and
other inputs;
24. • Exchange rate movements;
• Multilateral, bilateral and unilateral taxes or restrictions on trade;
• Non-tariff barriers such as environmental, health or safety
standards;
• The availability of adequate foreign exchange with which to pay
for imports; and
• Prices of goods manufactured at home (influenced by the
responsiveness of supply)
• Population Growth-To meet their needs, imports become
essential and the quantity of imports may increase as population
increases.
25. • Demonstration Effect - people in the less developed countries imitate
the consumption pattern of the developed countries, import will
increase, export remain constant.
• Poor Marketing Strategies- The superior marketing of the developed
countries have increased their surplus.The poor marketing facilities of
the developing countries have pushed them into huge deficits.
• Natural Factors - calamities such as the failure of rains or the coming
floods may easily cause disequilibrium in the balance of payments by
adversely affecting agriculture and industrial production in the
country.The exports may decline while the imports may go up causing
a discrepancy in the country's balance of payments.
26. Balance ofTradeVs Balance of Payments
Basis for Comparison Balance ofTrade Balance of Payment
Meaning Balance ofTrade is a statement that
captures the country's export and import of
goods with the remaining world.
Balance of Payment is a statement that
keeps track of all economic transactions
done by the country with the remaining
world.
Records Transactions related to goods only. Transactions related to both goods and
services are recorded.
Capital transfers Are not included in the Balance ofTrade. Are included in Balance of Payment.
Which is better? It gives a partial view of the country's
economic status
It gives a clear view of the economic
position of the country
Result It can be Favorable, Unfavorable or
balanced
Both the receipts and payment sides tallies
Component It is a component of Current Account of
Balance of Payment.
Current Account and Capital Account.
27. MeasuresTo Correct Disequilibrium in the BOP
1. Monetary Measures :-
a) Monetary Policy
The monetary policy is concerned with money supply and credit in the
economy.The Central Bank may expand or contract the money supply in the
economy through appropriate measures which will affect the prices.
b) Fiscal Policy
Fiscal policy is government's policy on income and expenditure. Government
incurs development and non - development expenditure,. It gets income
through taxation and non - tax sources. Depending upon the situation
governments expenditure may be increased or decreased.
28. c) Exchange Rate Depreciation
By reducing the value of the domestic currency, government can
correct the disequilibrium in the BOP in the economy. Exchange rate
depreciation reduces the value of home currency in relation to
foreign currency. As a result, import becomes costlier and export
become cheaper. It also leads to inflationary trends in the country,
d) Devaluation
Devaluation is lowering the exchange value of the official currency.
When a country devalues its currency, exports becomes cheaper and
imports become expensive which causes a reduction in the BOP
deficit.
29. e) Deflation
Deflation is the reduction in the quantity of money to reduce prices
and incomes. In the domestic market, when the currency is deflated,
there is a decrease in the income of the people.This puts curb on
consumption and government can increase exports and earn more
foreign exchange.
f) Exchange Control
All exporters are directed by the monetary authority to surrender their
foreign exchange earnings, and the total available foreign exchange is
rationed among the licensed importers.The license-holder can import
any good but amount if fixed by monetary authority.
30. II. Non- Monetary measures :-
a) Export Promotion
To control export promotions the country may adopt measures to stimulate
exports like:
• Export duties may be reduced to boost exports
• Cash assistance, subsidies can be given to exporters to increase exports
• Goods meant for exports can be exempted from all types of taxes.
b) Import Substitutes
• Steps may be taken to encourage the production of import substitutes.This will
save foreign exchange in the short run by replacing the use of imports by these
import substitutes.
31. c) Import Control
Import may be kept in check through the adoption of a wide variety of measures
like quotas and tariffs. Under the quota system, the government fixes the
maximum quantity of goods and services that can be imported during a particular
time period.
1. Quotas – Under the quota system, the government may fix and permit the
maximum quantity or value of a commodity to be imported during a given period
By restricting imports through the quota system, the deficit is reduced and the
balance of payments position is improved.
2.Tariffs – Tariffs are duties (taxes) imposed on imports.When tariffs are imposed,
the prices of imports would increase to the extent of tariff.The increased prices
will reduced the demand for imported goods and at the same time induce
domestic producers to produce more of import substitutes