Upload
fatima-shafqat
View
101
Download
5
Embed Size (px)
Citation preview
BALANCE OF TRADE &
BALANCE OF PAYMENT
Balance Of Trade:Introduction:Balance:A state of equilibrium or equal distribution of weight ,amount etc.
Trade:The act or process of buying ,selling or exchange commodities at either wholesale within country or between countries . Also called domestic trade or foreign trade.
Types of Trade:Domestic trade:Wholesale:The sale of good in large quantities.Retail:The sales of good to ultimate consumers usually in small Quantities.
International trade:Export: Send goods to another country for sale.Imports: To bring a product into a country for trade or sale.Enterpot trade: Trade in which imported goods are re-exported with or without any additional processing or repackaging
ADVANTAGES AND CHALLENGES TO EXPORTS
ADVANTAGES CHALLENGES
• EARNING MORE MONEY
• INCREASED SALES AND PROFITS
• UN WASTAGE OF THINGS
• GAIN GLOBAL SHARES
• LOWER PER UNIT COSTS
• HIGH TRANSPORTATION FEES
• ENTERING AN EXPORT AND BUSINESS REQUIRES CAREFUL PLANNING
• MARKET INFORMATION
• FINANCIAL RISK
• SECURITY REASONS
ADVANTAGES AND CHALLENGES OF IMPORTS
ADVANTAGES• LOWER PRICE RATE
• HIGH QUALITY
• CONSUMER BENEFITS
CHALLENGES• NEEDS FUNDS TO IMPORTING
• RISK TO SALE
• TRANSPORT COSTS
Balance of Trade: It is the comparison between value of export and imports of the physical items (goods , not services) of a country in a given period of time usually a year.
A country has to deal with other countries in respect of 3 items:-Visible items: which include all types of physical goods exported and imported.Invisible items: which include all those services whose export and import are not visible. e.g. transport services, medical services etc.Capital transfers: which are concerned with capital receipts and capital payment.
TYPES OF BALANCE OF TRADE:
•FAVOURABLE / SURPLUS BALANCE.
•UNFAVOURABLE /ADVERSE BALANCE.
Favourable Balance: When the value of the export of the country is
greater than imports of the country then balance of trade is said is said to be favorable.
(Exports>Imports)Unfavourable Balance: When the value of the exports of the country is less than imports of the country then balance of trade it said to be unfavorable. (Exports<imports)
Causes of unfavorable
balance of trade
High Imports
Low Production
High Population
Low Quality of
Goods
Imports of Consumer
Goods
Currency Value
Increase in oil Prices
Remedies for Improving
BOT
Explore Market
Special Scheme
Reduce use of
oil
Reduce Imports
More trade Agreement
Exportpromotion
Balance of payment: It is the record of all economic transaction between the resident of the country and rest of the world in particular period of a year or more commonly over a year.
Types of balance of payment
• FAVOURABLE / SURPLUS BALAN
• UNFAVOURABLECE /ADVERSE BALANCE
Favourable Balance: If total receipts are more than total payments ,the BOP is said to be favorable
(Receipts>Payments)Unfavourable Balance: If total receipts are less than total payments,the BOP is said to be unfavorable.
(Receipts<Payments)
Balance of payment = Balance of visible items +balance of invisible items
Components of BOPThe three major components of balance of payment are as follows:
1. Current Account2. Capital Account3. Balancing Item
Components of BOP
1. Current Account It refers to an account which records all the transactions relating to export and
import of goods and services and unilateral transfer It contains the receipts and payments relating to all the transactions of visible
items, invisible items and unilateral transfers It shows the net income generated in the foreign sector
Components of BOPComponents of Current Account Export and Import of Goods (Merchandise Transactions or
Visible Trade)
Export and Import of Services (Invisible Trade)
Unilateral or Unrequited Transfers to and from abroad (One
sided Transactions)
Income receipts and payments to and from abroad
Components of BOP2. Capital Account It 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
Capital Account is used to: It is related to claims and liabilities of financial nature
a. Finance deficit in current account; or
b. Absorb surplus of current account.
Components of BOP
Components of Capital Account:
Borrowings and landings to and from abroad
Investments to and from abroad
Change in Foreign Exchange Reserves
Components of BOP
3. Balancing Item It is simply an amount that accounts for any statistical errors and
assures that the current and capital accounts sum to zero By the principles of double entry accounting, an entry in the
current account gives rise to an entry in the capital account, and in aggregate the two accounts automatically balance
Components of BOP
It may be positive or negative
A balance isn't always reflected in reported figures
for the current and capital accounts, which might, for
example, report a surplus for both accounts
Components of Balancing Item
Causes of Unfavorable Balance of Payment
Addition in Imports Slow growth
in production
Less Exports
Affect of Inflation
Restriction on developing countries
Defense Spending
Remedies of improving BOP
Export Promotion
Special schemes
Explore MarketEnhance Production
Optimum Industries
Reduce Imports
BOP vs. BOT
BOP BOT
1. It is a narrow term.2. It includes only visible items.3. It can be favorable or unfavorable.4. BOT = Net Earnings on Exports-Net
Payment for imports
1. It is a broad term.2. It includes all transactions related to
visible, invisible and capital transfers.3. It is always balances itself.4. BOP = Current Account + Capital
Account + or - Balancing item ( Errors and omissions)
BOP vs. BOT
BOP BOT
Disequilibrium
Causes• Economic factorsImbalance between export & ImportNew Source of supply & new substitutesHigh Domestic Price
• Political factorsInstability & Disturbance cause large capital outflow
• Social factors
ConclusionIt is concluded that; balance of trade is the exchange of physical/visible items whether balance of payment is the exchange of both visible and non-visible items . In a country if, there is favorable balance of payment and trade then the country can progress and can compete with other developed countries in the world.
Thank you !