international business trade
TRANSCRIPT
INTERNATIONAL TRADE & BUSINESS
Under guidance-
PRESENTED BY_
BALANCE OF TRADE 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. A country has a trade deficit if it imports more than it exports; the opposite scenario is a trade surplus.
Also referred to as "trade balance" or "international trade balance."
BALANCE OF PAYMENTS
CONTENTSMeaning
Objective
Characteristics
Structure
ComponentsBalance of payments ‘Surplus’ and ‘Deficit’Ways of Measuring of Deficit and SurplusMeaning of disequilibrium in balance of paymentsCauses of disequilibrium in balance of paymentsMeasures to correct disequilibrium in Balance of Payments
BALANCE OF PAYMENTS
“A record of international transactions between residents of one country and the rest of the world”
OBJECTIVE
Its main objective is to represent
the economic position of a country,
whether its currency is rising or falling
in its external value.
CHARACTERSTICS OF BALANCE OF PAYMENTS
It is statement having two sides.
It is a record of economic transaction.
It shows a relation between receipts &
payments.
Visible & Invisible items both are included in
this statement.
It is prepared for a certain period of time.
STRUCTURE OF BALANCE OF PAYMENTS ACCOUNTS
• The balance of payments account of a
country is based on the principle of double-
entry book-keeping.
Each transaction is entered on the
credit and debit side of statement. But
balance of payments accounting differ from
business accounting in one respect. In
business accounting, debit(-) are shown on
the left side
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and credits (+) on the right side of statement .
But in the balance of payments accounting,
debits are shown on the right side and credits
on the left side of the statement. For example:
When a payment is received from a foreign
country, it is a credit transaction while
payment to a foreign country is a debit
transaction.
COMPONENTS OF BALANCE OF PAYMENTSCURR
ENT ACCO
UNT
• The current account of a country consists of all transactions related to trade in goods and services and unilateral transfers.
CAPITAL
ACCOUNT
• The capital account of a country consist of its transaction in financial assets in the form of short-term and long-term lending and borrowing.
Table. Balance of payments accountCURRENT ACCOUNT
EXPORTS•Goods•Services•Transfer payments
IMPORTS•Goods•Services•Transfer payments
CAPITAL ACCOUNT
Borrowings from Foreign countriesinvestments by foreign countries
Lending to foreign countriesDirect investments by foreign countries
OFFICIAL SETTLEMENTS ACCOUNT
Increase in Foreign Official Holdings
Increase in Official Reserve of Gold and Foreign Currencies
ERRORS AND OMISSIONS
Credits(+) (Receipts) Debits(-)Payments
Major items of India’s balance of payments (us$ million)
1007-08(PR) 1008-09(P) April-Dec(1008-09)(PR)
April-Dec(1009-1010)(P)
Export 166163 175184 150510 114473
Import 157789 194587 148967 113988
Trade Balance
-91616 -119403 -98446 -89515
Invisible net 74591 89587 70931 59185
Current Account Balance
-17034 -19817 -17516 -30330
Capital Account*
109198 9737 7136 41630
Change in Reserve
-91164 10080 10380 -11330
*Source: Reserve Bank of India Report
For example…Trade balance
• Debit: Sun Microsystems buys LCDs from Hong Kong.
• Credit: Singapore Airlines buys Boeing jet.
Trade in services
• Debit: American rents an apartment in Singapore.
• Credit: TUI - Germany places an ad in the NYT.
Income payments
• Debit: Honda US pays dividend to Honda Japan.
• Credit: Bank Austria pays salary to rep in NY offi ce.
Unilateral Current Transactions
• Debit: Peace Corps pays US volunteer teachers in Bosnia.
• Credit: TotalFina pays tuition of employee for Stern MBA.
BOP SURPLUS AND DEFICIT
What is BOP Surplus ?
What is BOP Deficit ?
MEANING OF DISEQUILIBRIUM IN BALANCE OF PAYMENTS
A country’s balance of payments is in
disequilibrium when there is no perfect
equality between the demand and supply for
foreign exchange.
CAUSES OF DISEQUILIBRIUM IN BALANCE OF PAYMENTS
• Temporary causes
• National Income
• Inflation
• Economic Development
• Borrowing and Lending
• Change in exchange rate
• Political factors-like instable govt.
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• TEMPORARY CAUSES- Temporary causes may
arises due to variations in the trade, effect of
weather on agriculture production etc.
• NATIONAL INCOME - Another cause is the
change in country’s national income. If the
national income of a country increases, it will
lead to an increase in imports thereby
creating a deficit in balance of payments.
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• INFLATION- Inflation is another cause of
disequilibrium in the balance of payment. If
there is inflation in the country prices of
exports increase, thus increase in export
prices leading to decline in exports and rise in
imports result in adverse.
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• ECONOMIC DEVELOPMENT- A country’s
balance of payments also depends on its
stage of economic development. If a country
is developing it will have a deficit in its
balance of payments.
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• BORROWING AND LENDING- A country which
gives loans and grants on a large scale to
other countries has a deficit in its balance of
payments on capital account. On the other
hand, a developing country borrowing large
funds from other countries may have a
favourable balance of payments.
Continue….• CHANGE IN EXCHANGE RATE– This change arise
due to change in exports and imports. If exports
of the country are more then imports the
demand for its currency increase so that the
rate of exchange moves in favours. On the
other hand if imports are more than exports the
demand for the foreign currency increase and
the rate of exchange will against the country.
Continue…• Political factors like instable govt.
Lack of export substitution
More imports
MEASURES OF DISEQUILIBRIUM IN BALANCE
OF PAYMENTS
MONETARY MEASURES
• Deflation• Exchange depreciation• Devaluation• Exchange control
NON-MONETARY MEASURES
• Tariffs• Quotas• Export promotion
measures• Import substitution
Cyclical disequilibrium
Structural disequilibrium
Short run disequilibrium
Long run disequilibrium
Monetary disequilibrium
Exchange rate fluctuation
disequilibrium
TYPES OF DISEQUILIBRIUM
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