Balance Of Payment

 "Dear friends,Hope you are doing well!!Today I am writing a post  on  macro-economics ,I hope it will benefit you a lot in studying.                                         

CHAPTER 1: BALANCE OF PAYMENT

BALANCE OF TRADE & ITS TYPE:

The term balance of trade denotes the different between the exports and imports of a country .A country may export and import both visible and invisible items .balance of trade is related to visible item only.It is the difference between the value of merchandise country may export and import.Symbolically balance of trade to export of visible goods minus import of visible goods.

TYPES OF BALANCE OF TRADE:

Favorable balance of trade: It implies a situation where in exports of a country are more than its imports during a year.

Unfavorable balance of trade:When total value of imports of a country exceeds the value of its export the situation in termed as Unfavorable balance of trade.

BALANCE OF PAYMENT:

It is a systematic record of all economic transaction between the residence of the country & the rest of the world during a given period of time.

The causes for the disequilibrium for the balance of payment:

1)Development program:The main reason behind adverse balance of payment in developing countries like India is a huge investment which is going on in development schemes in these countries these development program requires import of huge quantities of capital good technical know how& inflation

2)Inflation: May also cause disequilibrium in the balance of payment .Exports decrease as the result of inflation & at the same time demand for imports increases .It results in trading disequilibrium in the balance of payment

3)Growth of population :Population is growing at faster rate less developed country like India,china, Pakistan etc.Increases in population needs to inc in their needs for import & decreases in capacity to exports consequently imports of goods inc and expenditure decreases this creates disequilibrium  in the balance of payment underdeveloped country.

Demonstration effect:When people of under developed country come into contact with those of advance country through economic ,political, social nation there will be a demonstrate effect .

Current Account and Its Component:

Current account record exports & imports of goods &services and unilateral transfer.

Components of current account

1)Exports & Imports

2)Unilateral Transfer/un-required transfer

Capital account and Its Component:

The capital account record all international transaction that involves a resident of a domestic country changing in asset with a foreign resident its liability is a foreign various company of capital assets as fall.

1)Private Transactions: These are transaction that are affecting assets or liability by individuals business and other non government entities etc.

2)Official Transaction:Transaction affecting assets & liability by the government and its agency are called official transaction 

3)Direct Investment: It is the act of purchasing an asset and at the same time acquitted control of it .

4)Portfolio investment:It is the acquisition of an asset that does not give the purchase control over the asset.

AUTONOMOUS ITEM

It refers to the international economic transaction in balance of payment that place due to some economic motive such as profit maximization.

These transaction are dependent of the state of the countries B.O.P.these items in B.O.P

ACCOMMODATING ITEMS

It refers to transactions that occur because of there activity in the B.O.P such as government financing . Accommodating items are also refer to as below the line items.

Look at that Image below 

a) difference between current and capital a/c

 b) difference between  autonomous and accommodating transaction

Look at the Image below : Difference between  BOP &BOT)

Dear friends,

 Follow my blog if you find my notes useful!!!!!