1. SUBMITTED BY:
MEGHA PANWAR
SSEI-98
III SEMESTER
MSC ECONOMICS
SUBMITTED TO:
MRS. MADHU BISHT

2. INTERNATIONAL TRADE
 International trade is the exchange
of capital, goods, and services across international
borders or territories. In most countries, such trade
represents a significant share of gross domestic
product (GDP). While international trade has been
present throughout much of history (see Silk
Road, Amber Road), its economic, social, and
political importance has been on the rise in recent
centuries.
 It is the presupposition of international trade that
a sufficient level of geopolitical peace and stability
are prevailing in order to allow for the peaceful
exchange of trade and commerce to take place
between nations.

3. The balance of payments (BoP or BOP) of a
country is the record of all economic
transactions between the residents of a country
and the rest of the world in a particular period
(over a quarter of a year or more commonly
over a year).

4. A country has to deal with other countries with
respect to three 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. For
example , transport services , medical services,
etc.
Capital transfers which are concerned with
capital receipts and capital payment.

5. The balance of payments of a country
is a systematic record of all
economic transactions between the
residents of reporting country and
the residents of foreign countries
during a given period of time.

6. ECONOMIC TRANSACTIONS
 An agreement between a buyer and a seller to
exchange goods, services or financial instrumen
-ts.
 Here are some examples of activities you engage
in that would be considered transactions:
- Buying or selling a stock
- Buying a cup of coffee
- Selling your freelance services
- Buying or selling a house

7.  Transactions Can Be Internal or External
to an Organization
 Transactions occur whenever a good or service is
transferred from a provider to a user
 Transaction costs depend on how the transaction
is organized, i.e., the governance structure
− Within an organization, costs include
managing and monitoring personnel and
procuring inputs.
− When buying from an external provider, costs
can include source selection, contract
management, and performance monitoring.

8. (i) It is a systematic record of all economic
transactions between one country and the rest of
the world.
(ii) It includes all transactions, visible as well as
invisible.
(iii) It relates to a period of time. Generally, it is an
annual statement.
(iv) 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.

9.  The commercial balance or net
exports (sometimes symbolized as NX), is the
difference between the monetary value of exports
and imports of output in an economy over a
certain period, measured in the currency of that
economy.
 It is the relationship between a nation's imports
and exports.

10.  A positive balance is known
as a trade surplus if it consists
of exporting more than is
imported.
 a negative balance is referred to as a trade
deficit or, informally, a trade gap.

12. 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 payment accounting differ from
business accounting in one respect:

13. In business accounting,
• Debits(-) are shown on the left side of the
statement.
• Credits(+) are shown on the right side of the
statement.
In balance of payments accounting,
• Debits are shown on the right side of the statement.
• Credits are shown on the left side of the statement.

14. 1- Current Account Balance
- BOP on current account is a statement of
actual receipts and payments in short period.
- It includes a value of export and imports of
both visible and invisible goods . There can
either be surplus or deficit in current
account.
- The current account includes: export and
import of services, interests, profits, etc.

15. - It is the difference between the receipts and
payments on account of capital account. It refers
to all financial transactions.
- The capital account involves inflows and outflows
relating to investments, short term borrowings/lending,
and medium term to long term borrowing/lending.
- There can be surplus of deficit in capital account.
- It includes: private foreign loan flow, movement in
banking capital, official capital transactions,
reserves, gold movement, etc.

20. 1. DEVELOPMENT SCHEMES:
The main reason for adverse balance of payments in the
developing countries is the huge investment in development
schemes in these countries. The propensity to import of the
developing countries increases for want of capital for
industrialization. The exports, on the other hand, may not
increase because these countries are traditionally primary
producing countries
2. PRICE-COST STRUCTURE:
Changes in price-cost structure of export industries affect
the volume of exports and create disequilibrium in the
balance of payments. Increase in prices due to higher
wages, higher cost of raw materials, etc. reduces exports
and makes the balance of payments unfavorable.

21. 4. FALL IN EXPORT DEMAND:
There has been a considerable decline in (he export demand
for the primary goods of the underdeveloped countries as a
result of the large increase in the domestic production of
foodstuffs raw materials and substitutes in the rich countries.
Similarly, the advanced countries also find a fall in their
export demand because of loss of colonial markets.
3. CHANGES IN FOREIGN EXCHANGE RATES:
Changes in the rate of exchange is another cause of
disequilibrium in the balance of payments. An increase in the
external value of money makes imports cheaper and exports
dearer; thus, imports increase and exports fall and balance of
payments become unfavourable. Similarly, a reduction in the
external value of money leads to a reduction in imports and an
increase in exports.

22. 5. INTERNATIONAL BORROWING AND LENDING:
International borrowing and lending is another reason
for the disequilibrium in the balance of payments. The
borrowing country tends to have unfavourable balance
of payments, while the lending country tends to have
favourable balance of payments.
6. CYCLICAL FLUCTUATIONS:
Cyclical fluctuations cause cyclical disequilibrium in the
balance of payments. During depression, the incomes
of the people in foreign countries fall. As a result, the
exports of these countries tend to decline which, in
turn, produces disequilibrium in the home country's
balance of payment.

23. (i) EXPORT PROMOTION:
Exports should be encouraged by granting
various bounties to manufacturers and exporters.
At the same time, imports should be discouraged
by undertaking import substitution and imposing
reasonable tariffs.
(ii) IMPORT:
Restrictions and Import Substitution are other
measures of correcting disequilibrium.

24. (iii) REDUCING INFLATION:
Inflation (continuous rise in prices) discourages
exports and encourages imports. Therefore,
government should check inflation and lower the
prices in the country.
(iv) EXCHANGE CONTROL:
Government should control foreign exchange by
ordering all exporters to surrender their foreign
exchange to the central bank and then ration out
among licensed importers.

25. (v) DEVALUATION OF DOMESTIC CURRENCY:
It means fall in the external (exchange) value of
domestic currency in terms of a unit of foreign
exchange which makes domestic goods cheaper for
the foreigners. Devaluation is done by a government
order when a country has adopted a fixed exchange
rate system.
(vi) DEPRECIATION:
Like devaluation, depreciation leads to fall in
external purchasing power of home currency.
Depreciation occurs in a free market system wherein
demand for foreign exchange far exceeds the supply
of foreign exchange in foreign exchange market of a
country .