SlideShare a Scribd company logo
Adjustment of Balance of Payments’
Disequilibrium
1
Presented by
Group no 4( roll no 30 to 40)
2
Equilibrium in Balance of Payment of Nations
When demand for and supply of foreign currency in a nation in
a given period are equal – it is viewed as equilibrium position
in BOP.
But in case of most of nations, it is not so i.e. they either enjoy a
surplus BOP or deficit. It represents disequilibrium in BOP.
The systematic record of all economic transactions between residents of a
country and rest of world in a given period is called the Balance of
Payment.
3
A): Unfavorable balance of payment.
Balance of payment is unfavorable when the payment(import) of
the country are more than its receipts(export).
B): Favorable balance of payment.
Balance of payment is favorable when the receipts (export) of the
country are more than its payment(import).
Two forms of disequilibrium
4
Disequilibrium in BOP are caused by :
• Economic Factors.
• Natural factors
• population explosion
• Foreign capital investment
• Demonstration effect
• Political Factor.
• social Factor.
CAUSES FOR DISEQUILIBRIUM
5
* Economic Factors may cause
1) Development Disequilibrium
2) Cyclical Disequilibrium
3) Secular disequilibrium and
4) Structural Disequilibrium
1. Development Disequilibrium
Developing countries mostly take up activities like establishment of
industries, infrastructure etc. which require greater imports of
capital goods, machinery etc. In addition it also shoots up imports
of consumer goods on account of increase in per capita income and
aggregate demands. Thus increased developmental activities result
in greater outflow of foreign currency leading to deficit in BOP.
6
2. Cyclical Disequilibrium
It occurs due to business cycles. The cyclical changes cause
disequilibrium in the balance of payment. When prices rise
during prosperity and fall during depression, the country which
has highly elastic demand or imports faces a fall in the value of
imports and if it counties its exports it will have a surplus in the
BOP and vice versa.
7
3. Secular Disequilibrium
It mostly happens in developed countries where disposable income
of people are very high. It raises in turn the cost of production and
price of goods and services. Consequently, developed countries
prefer to outsource goods and services from other countries where
quality of goods is high and cost . of production is low. It may
lead to secular disequilibrium in BOP of nation.
8
4. Structural Disequilibrium
Sometimes notable shift comes in nature of economy of
countries e.g. from agricultural to manufacturing or
services.
These may call for structural changes in developing
alternative items, sources of supply, changes in transport
channels and also costs.
These structural changes may enhance imports of capital
goods and consumer goods resulting in deficits in BOP.
India’s BOP Disequilibrium due to Structural Changes
Between 1999-2000 & 2000-2001, structural changes in
India’s economy increased POL imports from $ 5.64 b. to
$ 9.77 b. ; electronic goods from $ 1.47 b. to $ 2.05 b. etc.
 Natural factors
sometimes due to natural and other factors, industrial and agricultural
production in the country falls. Consequently exports of fall and if import
are not cut off , BOP becomes adverse.
Population Explosion
In the underdeveloped country aggregate consumption demand increases
due to rapid increase in population. As a result of this export surplus falls
down
9
 Foreign capital investment flow.
 When a country induced by profit motive makes large capital investment in
the foreign countries then then this capital out flow has an adverse affect on
bop capital expenditure.
 Demonstration effect.
 Nurkse opined that people of under developed countries try to imitate the
consumption pattern of the people of the developed country. So their
import increases very much and cause disequilibrium in BOP
7/4/2014BoP Disequilibrium 10
11
* Political Factors
Political uncertainties, instability, internal disturbances,
external wars etc. create threatening situation for local
industry and investments. In such cases domestic
production declines leading to increase in imports and
outflow of capital
It results in deficit in BOP as it happened in Sri Lanka,
Pakistan etc.
Social Factors
Changes in culture, taste, preference, fashion etc. bring
about changes in nature of import of consumer items first,
followed by capital goods leading to deficit in BOP.
Correction of BoP disequilibrium
Automatic correction Deliberate measures
Monetary measures Trade measures Miscellaneous measures
Export promotion Import control
13
Correction of BOP Disequilibrium
When BOP becomes surplus, nations enjoy the same as it
offers a number of desirable situation like increased
purchasing power and influence in global market.
In cases of disequilibrium due to deficit, countries adopt
measures to eliminate the same completely, if not possible
at least reduce it.
14
Deficit in BOP indicates that demand for foreign exchange is
higher than its supply in the nation. It leads to devaluation of
local currency in relation to the foreign currency. Thereby
imports become costlier and exports cheaper. So imports get
reduced and exports are increased. Thereby outflow of
Foreign exchanges is reduced and income is increased leading
to automatic restoration of equilibrium.
1. Automatic Correction of BOP Disequilibrium
15
2. Deliberate Measures
Govt. also adopts certain measures to control deficit BOP
called ‘Deliberate Measures’ as indicated.
A. Monetary Measures
* Reduction in Money Supply : ( through Interest rate, deflation
Cash reserve ratio, Statutory liquidity ratio , Repo , Marginal standing
facility. etc.)
RBI takes to control credit so that money supply in the country is
reduced which leads to decline in income, purchasing power,
aggregate demand and consumption. Thus imports decline and hence
outflow of foreign currency. In turn exports grow and inflow of
foreign currency to set right BOP disequilibrium.
 Deflation : fall in the home currency through dear money
policy resulting in a fall in cost and prices and hence
stimulating exports and discouraging import.
 Depreciation:
 Fall in the rate of exchange of one currency in terms of
another. This will make import costlier, because one has to
pay more in case of depreciation of currency. So the import
become very expensive. But export will become less
expensive and that would result in increased export and
there by automatic correction.
7/4/2014BoP Disequilibrium 16
17
* Interest Rate Adjustment :
Inflow of Foreign Exchange in deficit BOP nation falls, so
liquidity falls. So on short term basis ‘Interest rate’ is raised –
leading to investments and loans coming from foreign nations
improving BOP scenario.
* Devaluation
In case of deficit BOP, purchasing power of local currency reduces,
the Govt. deliberately devalues currency. Thus imports become
costlier and exports cheaper. Hence increased exports and reduced
imports balance the disequilibrium of BOP.
18
* Exchange Control
Exporters are to surrender the foreign exchange earned to
RBI through authorized dealers and importers are to draw
foreign exchange from authorized dealers.
-- Through suitable policies from time to time, Govt. of
India and RBI control imports to reduce deficit of BOP.
B. Trade Measures
These measures try to restore equilibrium through
increasing exports and/or reducing imports.
19
* Export Promotion Measures
Govt. of India endeavor to boost exports by reducing
export duties, providing incentives, encouraging EOUs,
forming EPZs, FTZs etc.
* Import Control Measures
Import control measures include ways and means of
restricting imports through duties, quotas, licences etc.
20
C. Miscellaneous Measures
Govt. of India tries to remove BOP disequilibrium by
assortment of means like
a) Attracting Foreign Investments both FDI and FPI
b) Attracting NRI deposits
c) Promoting tourism
d) Negotiating Foreign currency loans etc.
Thank you
7/4/2014BoP Disequilibrium 21

More Related Content

What's hot

BALANCE OF PAYMENT
BALANCE OF PAYMENTBALANCE OF PAYMENT
BALANCE OF PAYMENT
Sourabh Modgil
 
Balance of payment theory
Balance of payment theoryBalance of payment theory
Balance of payment theory
N A M COLLEGE KALLIKKANDY
 
Comparative cost advanatge theory
Comparative cost advanatge theoryComparative cost advanatge theory
Comparative cost advanatge theory
DrJagdish Maheshwari
 
Balance of payments
Balance of paymentsBalance of payments
Balance of payments
madan kumar
 
ACCELERATOR THEORY OF INVESTMENT
ACCELERATOR THEORY OF INVESTMENT ACCELERATOR THEORY OF INVESTMENT
ACCELERATOR THEORY OF INVESTMENT
Dr. Mani Madhavan
 
Fixed Exchange Rate | Economics
Fixed Exchange Rate | EconomicsFixed Exchange Rate | Economics
Fixed Exchange Rate | Economics
Transweb Global Inc
 
Heckscher ohlin
Heckscher ohlinHeckscher ohlin
Heckscher ohlin
ridhika_gulati
 
Purchasing Power Parity - Introduction, Meaning, Merits and Demerits
Purchasing Power Parity - Introduction, Meaning, Merits and DemeritsPurchasing Power Parity - Introduction, Meaning, Merits and Demerits
Purchasing Power Parity - Introduction, Meaning, Merits and Demerits
Sundar B N
 
Philips curve
Philips curvePhilips curve
Philips curve
Divya Jain
 
International Economics
International EconomicsInternational Economics
International Economics
JisjissyChandran
 
Factor Affecting exchange rate and Theories of exchange rate
Factor Affecting exchange rate and Theories of exchange rate  Factor Affecting exchange rate and Theories of exchange rate
Factor Affecting exchange rate and Theories of exchange rate
Jatin Goyal
 
Modern Theory of International Trade
Modern Theory of International TradeModern Theory of International Trade
Modern Theory of International Trade
Higher Education Department, Haryana
 
Disequilibrium in Balance of Payment
Disequilibrium in Balance of Payment Disequilibrium in Balance of Payment
Disequilibrium in Balance of Payment
Vijyata Singh
 
Terms of trade
Terms of tradeTerms of trade
Terms of trade
Dhina Karan
 
Terms of trade
Terms of tradeTerms of trade
Terms of trade
sagarbjym
 
Balance of payment
Balance of paymentBalance of payment
Balance of payment
Nithin Kumar
 
Terms of trade-Nelson
Terms of trade-NelsonTerms of trade-Nelson
Terms of trade-Nelson
Nelson Fernandes
 
Corrective measures of BOP disequilibrium
Corrective measures of BOP disequilibriumCorrective measures of BOP disequilibrium
Corrective measures of BOP disequilibrium
Kunthavai ..
 
Exchange Rate
Exchange RateExchange Rate
Exchange Rate
Lando Graham
 
Fixed and Floating exchange rate
Fixed and Floating exchange rateFixed and Floating exchange rate
Fixed and Floating exchange rate
CA Dr. Prithvi Ranjan Parhi
 

What's hot (20)

BALANCE OF PAYMENT
BALANCE OF PAYMENTBALANCE OF PAYMENT
BALANCE OF PAYMENT
 
Balance of payment theory
Balance of payment theoryBalance of payment theory
Balance of payment theory
 
Comparative cost advanatge theory
Comparative cost advanatge theoryComparative cost advanatge theory
Comparative cost advanatge theory
 
Balance of payments
Balance of paymentsBalance of payments
Balance of payments
 
ACCELERATOR THEORY OF INVESTMENT
ACCELERATOR THEORY OF INVESTMENT ACCELERATOR THEORY OF INVESTMENT
ACCELERATOR THEORY OF INVESTMENT
 
Fixed Exchange Rate | Economics
Fixed Exchange Rate | EconomicsFixed Exchange Rate | Economics
Fixed Exchange Rate | Economics
 
Heckscher ohlin
Heckscher ohlinHeckscher ohlin
Heckscher ohlin
 
Purchasing Power Parity - Introduction, Meaning, Merits and Demerits
Purchasing Power Parity - Introduction, Meaning, Merits and DemeritsPurchasing Power Parity - Introduction, Meaning, Merits and Demerits
Purchasing Power Parity - Introduction, Meaning, Merits and Demerits
 
Philips curve
Philips curvePhilips curve
Philips curve
 
International Economics
International EconomicsInternational Economics
International Economics
 
Factor Affecting exchange rate and Theories of exchange rate
Factor Affecting exchange rate and Theories of exchange rate  Factor Affecting exchange rate and Theories of exchange rate
Factor Affecting exchange rate and Theories of exchange rate
 
Modern Theory of International Trade
Modern Theory of International TradeModern Theory of International Trade
Modern Theory of International Trade
 
Disequilibrium in Balance of Payment
Disequilibrium in Balance of Payment Disequilibrium in Balance of Payment
Disequilibrium in Balance of Payment
 
Terms of trade
Terms of tradeTerms of trade
Terms of trade
 
Terms of trade
Terms of tradeTerms of trade
Terms of trade
 
Balance of payment
Balance of paymentBalance of payment
Balance of payment
 
Terms of trade-Nelson
Terms of trade-NelsonTerms of trade-Nelson
Terms of trade-Nelson
 
Corrective measures of BOP disequilibrium
Corrective measures of BOP disequilibriumCorrective measures of BOP disequilibrium
Corrective measures of BOP disequilibrium
 
Exchange Rate
Exchange RateExchange Rate
Exchange Rate
 
Fixed and Floating exchange rate
Fixed and Floating exchange rateFixed and Floating exchange rate
Fixed and Floating exchange rate
 

Viewers also liked

UTC/J-Curve Sales Preso - 6-23-10
UTC/J-Curve Sales Preso - 6-23-10UTC/J-Curve Sales Preso - 6-23-10
UTC/J-Curve Sales Preso - 6-23-10
John Boyd
 
CAPE Economics, June 2006, Unit 2, Paper 2 suggested answer by Edward Bahaw
CAPE Economics, June 2006, Unit 2, Paper 2 suggested answer by Edward BahawCAPE Economics, June 2006, Unit 2, Paper 2 suggested answer by Edward Bahaw
CAPE Economics, June 2006, Unit 2, Paper 2 suggested answer by Edward Bahaw
CAPE ECONOMICS
 
CAPE Economics, June 2004, Unit 2, Paper 2 suggested answer by Edward Bahaw
CAPE Economics, June 2004, Unit 2, Paper 2 suggested answer by Edward BahawCAPE Economics, June 2004, Unit 2, Paper 2 suggested answer by Edward Bahaw
CAPE Economics, June 2004, Unit 2, Paper 2 suggested answer by Edward Bahaw
CAPE ECONOMICS
 
CAPE Economics, June 2007, Unit 2, Paper 2 suggested answer by Edward Bahaw
CAPE Economics, June 2007, Unit 2, Paper 2 suggested answer by Edward BahawCAPE Economics, June 2007, Unit 2, Paper 2 suggested answer by Edward Bahaw
CAPE Economics, June 2007, Unit 2, Paper 2 suggested answer by Edward Bahaw
CAPE ECONOMICS
 
Dollar and euro
Dollar and euroDollar and euro
Dollar and euro
nicolebejarano
 
June 2010 unit 2 paper 2 answer
June 2010 unit 2 paper 2 answerJune 2010 unit 2 paper 2 answer
June 2010 unit 2 paper 2 answer
CAPE ECONOMICS
 
CAPE Economics, June 12th, Unit 2, Paper 2 suggested answer by Edward Bahaw
CAPE Economics, June 12th, Unit 2, Paper 2 suggested answer by Edward BahawCAPE Economics, June 12th, Unit 2, Paper 2 suggested answer by Edward Bahaw
CAPE Economics, June 12th, Unit 2, Paper 2 suggested answer by Edward Bahaw
CAPE ECONOMICS
 
CAPE Economics, July 2nd, Unit 1, Paper 2 suggested answer by Edward Bahaw
CAPE Economics, July 2nd, Unit 1, Paper 2 suggested answer by Edward BahawCAPE Economics, July 2nd, Unit 1, Paper 2 suggested answer by Edward Bahaw
CAPE Economics, July 2nd, Unit 1, Paper 2 suggested answer by Edward Bahaw
CAPE ECONOMICS
 
Asian Development Bank
Asian Development BankAsian Development Bank
Asian Development Bank
IMS peshawar university
 
Euro Vs Dollar
Euro Vs DollarEuro Vs Dollar
Euro Vs Dollar
akshat08
 

Viewers also liked (10)

UTC/J-Curve Sales Preso - 6-23-10
UTC/J-Curve Sales Preso - 6-23-10UTC/J-Curve Sales Preso - 6-23-10
UTC/J-Curve Sales Preso - 6-23-10
 
CAPE Economics, June 2006, Unit 2, Paper 2 suggested answer by Edward Bahaw
CAPE Economics, June 2006, Unit 2, Paper 2 suggested answer by Edward BahawCAPE Economics, June 2006, Unit 2, Paper 2 suggested answer by Edward Bahaw
CAPE Economics, June 2006, Unit 2, Paper 2 suggested answer by Edward Bahaw
 
CAPE Economics, June 2004, Unit 2, Paper 2 suggested answer by Edward Bahaw
CAPE Economics, June 2004, Unit 2, Paper 2 suggested answer by Edward BahawCAPE Economics, June 2004, Unit 2, Paper 2 suggested answer by Edward Bahaw
CAPE Economics, June 2004, Unit 2, Paper 2 suggested answer by Edward Bahaw
 
CAPE Economics, June 2007, Unit 2, Paper 2 suggested answer by Edward Bahaw
CAPE Economics, June 2007, Unit 2, Paper 2 suggested answer by Edward BahawCAPE Economics, June 2007, Unit 2, Paper 2 suggested answer by Edward Bahaw
CAPE Economics, June 2007, Unit 2, Paper 2 suggested answer by Edward Bahaw
 
Dollar and euro
Dollar and euroDollar and euro
Dollar and euro
 
June 2010 unit 2 paper 2 answer
June 2010 unit 2 paper 2 answerJune 2010 unit 2 paper 2 answer
June 2010 unit 2 paper 2 answer
 
CAPE Economics, June 12th, Unit 2, Paper 2 suggested answer by Edward Bahaw
CAPE Economics, June 12th, Unit 2, Paper 2 suggested answer by Edward BahawCAPE Economics, June 12th, Unit 2, Paper 2 suggested answer by Edward Bahaw
CAPE Economics, June 12th, Unit 2, Paper 2 suggested answer by Edward Bahaw
 
CAPE Economics, July 2nd, Unit 1, Paper 2 suggested answer by Edward Bahaw
CAPE Economics, July 2nd, Unit 1, Paper 2 suggested answer by Edward BahawCAPE Economics, July 2nd, Unit 1, Paper 2 suggested answer by Edward Bahaw
CAPE Economics, July 2nd, Unit 1, Paper 2 suggested answer by Edward Bahaw
 
Asian Development Bank
Asian Development BankAsian Development Bank
Asian Development Bank
 
Euro Vs Dollar
Euro Vs DollarEuro Vs Dollar
Euro Vs Dollar
 

Similar to Balance of payments

Balance of Payments
Balance of PaymentsBalance of Payments
Balance of Payments
BinduHA
 
Balance of payments
Balance of paymentsBalance of payments
Balance of payments
namanjain221
 
Balance of payments
Balance of paymentsBalance of payments
Balance of payments
Raj vardhan
 
Balance of Payment
Balance of PaymentBalance of Payment
Balance of Payment
sarath shaji
 
Balance of payment chapter 5
Balance of payment chapter 5Balance of payment chapter 5
Balance of payment chapter 5
Nayan Vaghela
 
Balance of Payment
Balance of Payment Balance of Payment
Balance of Payment
Jay Raval
 
disequlibrium in the balance of payments.pptx
disequlibrium in the balance of payments.pptxdisequlibrium in the balance of payments.pptx
disequlibrium in the balance of payments.pptx
mangalyap23
 
Balance of payment
Balance of paymentBalance of payment
Balance of payment
hiedi
 
Bop
BopBop
Balance of payment disequilibrium
Balance of payment disequilibriumBalance of payment disequilibrium
Balance of payment disequilibrium
Kunthavai ..
 
Balance of Payments
Balance of PaymentsBalance of Payments
Balance of Payments
Akshay Singh
 
Balance of Payments
Balance of PaymentsBalance of Payments
Balance of Payments
Konok Mondal
 
Balance of payments
Balance of paymentsBalance of payments
Balance of payments
VINAY KENKERE
 
M egha panwar iii sem(ssei 98) - copy
M egha panwar iii sem(ssei 98) - copyM egha panwar iii sem(ssei 98) - copy
M egha panwar iii sem(ssei 98) - copy
Kokil Gupta
 
bop.pdfjvjvhjvhjvjvjcgchchchchchchvchvchvchvc
bop.pdfjvjvhjvhjvjvjcgchchchchchchvchvchvchvcbop.pdfjvjvhjvhjvjvjcgchchchchchchvchvchvchvc
bop.pdfjvjvhjvhjvjvjcgchchchchchchvchvchvchvc
wexop40522
 
Balance Of Payment
Balance Of PaymentBalance Of Payment
Balance Of Payment
sarthakjain218
 
saurabh bop.pptxtrsgftxkmh,xgjc.j,xjgfmkghxkm
saurabh bop.pptxtrsgftxkmh,xgjc.j,xjgfmkghxkmsaurabh bop.pptxtrsgftxkmh,xgjc.j,xjgfmkghxkm
saurabh bop.pptxtrsgftxkmh,xgjc.j,xjgfmkghxkm
RishiYadav307723
 
BOP.pdf
BOP.pdfBOP.pdf
BOP.pdf
sampadachorat
 
BOP (1).pdf
BOP (1).pdfBOP (1).pdf
BOP (1).pdf
sampadachorat
 
BOP.pdf
BOP.pdfBOP.pdf

Similar to Balance of payments (20)

Balance of Payments
Balance of PaymentsBalance of Payments
Balance of Payments
 
Balance of payments
Balance of paymentsBalance of payments
Balance of payments
 
Balance of payments
Balance of paymentsBalance of payments
Balance of payments
 
Balance of Payment
Balance of PaymentBalance of Payment
Balance of Payment
 
Balance of payment chapter 5
Balance of payment chapter 5Balance of payment chapter 5
Balance of payment chapter 5
 
Balance of Payment
Balance of Payment Balance of Payment
Balance of Payment
 
disequlibrium in the balance of payments.pptx
disequlibrium in the balance of payments.pptxdisequlibrium in the balance of payments.pptx
disequlibrium in the balance of payments.pptx
 
Balance of payment
Balance of paymentBalance of payment
Balance of payment
 
Bop
BopBop
Bop
 
Balance of payment disequilibrium
Balance of payment disequilibriumBalance of payment disequilibrium
Balance of payment disequilibrium
 
Balance of Payments
Balance of PaymentsBalance of Payments
Balance of Payments
 
Balance of Payments
Balance of PaymentsBalance of Payments
Balance of Payments
 
Balance of payments
Balance of paymentsBalance of payments
Balance of payments
 
M egha panwar iii sem(ssei 98) - copy
M egha panwar iii sem(ssei 98) - copyM egha panwar iii sem(ssei 98) - copy
M egha panwar iii sem(ssei 98) - copy
 
bop.pdfjvjvhjvhjvjvjcgchchchchchchvchvchvchvc
bop.pdfjvjvhjvhjvjvjcgchchchchchchvchvchvchvcbop.pdfjvjvhjvhjvjvjcgchchchchchchvchvchvchvc
bop.pdfjvjvhjvhjvjvjcgchchchchchchvchvchvchvc
 
Balance Of Payment
Balance Of PaymentBalance Of Payment
Balance Of Payment
 
saurabh bop.pptxtrsgftxkmh,xgjc.j,xjgfmkghxkm
saurabh bop.pptxtrsgftxkmh,xgjc.j,xjgfmkghxkmsaurabh bop.pptxtrsgftxkmh,xgjc.j,xjgfmkghxkm
saurabh bop.pptxtrsgftxkmh,xgjc.j,xjgfmkghxkm
 
BOP.pdf
BOP.pdfBOP.pdf
BOP.pdf
 
BOP (1).pdf
BOP (1).pdfBOP (1).pdf
BOP (1).pdf
 
BOP.pdf
BOP.pdfBOP.pdf
BOP.pdf
 

Recently uploaded

Monthly Market Risk Update: June 2024 [SlideShare]
Monthly Market Risk Update: June 2024 [SlideShare]Monthly Market Risk Update: June 2024 [SlideShare]
Monthly Market Risk Update: June 2024 [SlideShare]
Commonwealth
 
一比一原版加州理工学院毕业证(Caltech毕业证书)学历如何办理
一比一原版加州理工学院毕业证(Caltech毕业证书)学历如何办理一比一原版加州理工学院毕业证(Caltech毕业证书)学历如何办理
一比一原版加州理工学院毕业证(Caltech毕业证书)学历如何办理
aedhu
 
Presentation on recent trends in financial system .pptx
Presentation on recent trends in financial system .pptxPresentation on recent trends in financial system .pptx
Presentation on recent trends in financial system .pptx
SomiyahJagadeesh
 
Independent Call Girls Visakhapatnam 8800000000 Low Rate HIgh Profile Visakha...
Independent Call Girls Visakhapatnam 8800000000 Low Rate HIgh Profile Visakha...Independent Call Girls Visakhapatnam 8800000000 Low Rate HIgh Profile Visakha...
Independent Call Girls Visakhapatnam 8800000000 Low Rate HIgh Profile Visakha...
khannsohil539
 
Vadhavan Port Development _ What to Expect In and Beyond (1).pdf
Vadhavan Port Development _ What to Expect In and Beyond (1).pdfVadhavan Port Development _ What to Expect In and Beyond (1).pdf
Vadhavan Port Development _ What to Expect In and Beyond (1).pdf
johnson100mee
 
Poonawalla Fincorp’s Strategy to Achieve Industry-Leading NPA Metrics
Poonawalla Fincorp’s Strategy to Achieve Industry-Leading NPA MetricsPoonawalla Fincorp’s Strategy to Achieve Industry-Leading NPA Metrics
Poonawalla Fincorp’s Strategy to Achieve Industry-Leading NPA Metrics
shruti1menon2
 
Introduction to Metro in India by cosmo soil.pptx
Introduction to Metro in India by cosmo soil.pptxIntroduction to Metro in India by cosmo soil.pptx
Introduction to Metro in India by cosmo soil.pptx
cosmo-soil
 
一比一原版(leeds学位证书)英国利兹大学毕业证如何办理
一比一原版(leeds学位证书)英国利兹大学毕业证如何办理一比一原版(leeds学位证书)英国利兹大学毕业证如何办理
一比一原版(leeds学位证书)英国利兹大学毕业证如何办理
eeqcxun
 
The various stages, after the initial invitation has been made to the public ...
The various stages, after the initial invitation has been made to the public ...The various stages, after the initial invitation has been made to the public ...
The various stages, after the initial invitation has been made to the public ...
Yashwanth Rm
 
5 Compelling Reasons to Invest in Cryptocurrency Now
5 Compelling Reasons to Invest in Cryptocurrency Now5 Compelling Reasons to Invest in Cryptocurrency Now
5 Compelling Reasons to Invest in Cryptocurrency Now
Daniel
 
Chandigarh Call Girls 7339748667 With Free Home Delivery At Your Door
Chandigarh Call Girls 7339748667 With Free Home Delivery At Your DoorChandigarh Call Girls 7339748667 With Free Home Delivery At Your Door
Chandigarh Call Girls 7339748667 With Free Home Delivery At Your Door
Russian Escorts in Delhi 9711199171 with low rate Book online
 
Navigating Your Financial Future: Comprehensive Planning with Mike Baumann
Navigating Your Financial Future: Comprehensive Planning with Mike BaumannNavigating Your Financial Future: Comprehensive Planning with Mike Baumann
Navigating Your Financial Future: Comprehensive Planning with Mike Baumann
mikebaumannfinancial
 
Singapore Event 2024 State of Play Slides
Singapore Event 2024 State of Play SlidesSingapore Event 2024 State of Play Slides
Singapore Event 2024 State of Play Slides
International Federation of Accountants
 
How to Invest in Cryptocurrency for Beginners: A Complete Guide
How to Invest in Cryptocurrency for Beginners: A Complete GuideHow to Invest in Cryptocurrency for Beginners: A Complete Guide
How to Invest in Cryptocurrency for Beginners: A Complete Guide
Daniel
 
足球博彩-足球博彩在哪个软件买球-足球博彩买球软件下载|【​网址​🎉ac55.net🎉​】
足球博彩-足球博彩在哪个软件买球-足球博彩买球软件下载|【​网址​🎉ac55.net🎉​】足球博彩-足球博彩在哪个软件买球-足球博彩买球软件下载|【​网址​🎉ac55.net🎉​】
足球博彩-足球博彩在哪个软件买球-足球博彩买球软件下载|【​网址​🎉ac55.net🎉​】
tuppermarvin593
 
Application Of mathematics in Finance- Time Value of Money
Application Of mathematics in Finance- Time Value of MoneyApplication Of mathematics in Finance- Time Value of Money
Application Of mathematics in Finance- Time Value of Money
vineetabhati1
 
Macroeconomic-digest-of-Ukraine-0624-Eng.pdf
Macroeconomic-digest-of-Ukraine-0624-Eng.pdfMacroeconomic-digest-of-Ukraine-0624-Eng.pdf
Macroeconomic-digest-of-Ukraine-0624-Eng.pdf
olaola5673
 
CRYPTOCURRENCY REVOLUTIONIZING THE FINANCIAL LANDSCAPE AND SHAPING THE FUTURE...
CRYPTOCURRENCY REVOLUTIONIZING THE FINANCIAL LANDSCAPE AND SHAPING THE FUTURE...CRYPTOCURRENCY REVOLUTIONIZING THE FINANCIAL LANDSCAPE AND SHAPING THE FUTURE...
CRYPTOCURRENCY REVOLUTIONIZING THE FINANCIAL LANDSCAPE AND SHAPING THE FUTURE...
itsfaizankhan091
 
Singapore 2024 Event The Way Forward Slides
Singapore 2024 Event The Way Forward SlidesSingapore 2024 Event The Way Forward Slides
Singapore 2024 Event The Way Forward Slides
International Federation of Accountants
 
GUIA_LEGAL_CHAPTER_2_FOREIGN EXCHANGE.pdf
GUIA_LEGAL_CHAPTER_2_FOREIGN EXCHANGE.pdfGUIA_LEGAL_CHAPTER_2_FOREIGN EXCHANGE.pdf
GUIA_LEGAL_CHAPTER_2_FOREIGN EXCHANGE.pdf
ProexportColombia1
 

Recently uploaded (20)

Monthly Market Risk Update: June 2024 [SlideShare]
Monthly Market Risk Update: June 2024 [SlideShare]Monthly Market Risk Update: June 2024 [SlideShare]
Monthly Market Risk Update: June 2024 [SlideShare]
 
一比一原版加州理工学院毕业证(Caltech毕业证书)学历如何办理
一比一原版加州理工学院毕业证(Caltech毕业证书)学历如何办理一比一原版加州理工学院毕业证(Caltech毕业证书)学历如何办理
一比一原版加州理工学院毕业证(Caltech毕业证书)学历如何办理
 
Presentation on recent trends in financial system .pptx
Presentation on recent trends in financial system .pptxPresentation on recent trends in financial system .pptx
Presentation on recent trends in financial system .pptx
 
Independent Call Girls Visakhapatnam 8800000000 Low Rate HIgh Profile Visakha...
Independent Call Girls Visakhapatnam 8800000000 Low Rate HIgh Profile Visakha...Independent Call Girls Visakhapatnam 8800000000 Low Rate HIgh Profile Visakha...
Independent Call Girls Visakhapatnam 8800000000 Low Rate HIgh Profile Visakha...
 
Vadhavan Port Development _ What to Expect In and Beyond (1).pdf
Vadhavan Port Development _ What to Expect In and Beyond (1).pdfVadhavan Port Development _ What to Expect In and Beyond (1).pdf
Vadhavan Port Development _ What to Expect In and Beyond (1).pdf
 
Poonawalla Fincorp’s Strategy to Achieve Industry-Leading NPA Metrics
Poonawalla Fincorp’s Strategy to Achieve Industry-Leading NPA MetricsPoonawalla Fincorp’s Strategy to Achieve Industry-Leading NPA Metrics
Poonawalla Fincorp’s Strategy to Achieve Industry-Leading NPA Metrics
 
Introduction to Metro in India by cosmo soil.pptx
Introduction to Metro in India by cosmo soil.pptxIntroduction to Metro in India by cosmo soil.pptx
Introduction to Metro in India by cosmo soil.pptx
 
一比一原版(leeds学位证书)英国利兹大学毕业证如何办理
一比一原版(leeds学位证书)英国利兹大学毕业证如何办理一比一原版(leeds学位证书)英国利兹大学毕业证如何办理
一比一原版(leeds学位证书)英国利兹大学毕业证如何办理
 
The various stages, after the initial invitation has been made to the public ...
The various stages, after the initial invitation has been made to the public ...The various stages, after the initial invitation has been made to the public ...
The various stages, after the initial invitation has been made to the public ...
 
5 Compelling Reasons to Invest in Cryptocurrency Now
5 Compelling Reasons to Invest in Cryptocurrency Now5 Compelling Reasons to Invest in Cryptocurrency Now
5 Compelling Reasons to Invest in Cryptocurrency Now
 
Chandigarh Call Girls 7339748667 With Free Home Delivery At Your Door
Chandigarh Call Girls 7339748667 With Free Home Delivery At Your DoorChandigarh Call Girls 7339748667 With Free Home Delivery At Your Door
Chandigarh Call Girls 7339748667 With Free Home Delivery At Your Door
 
Navigating Your Financial Future: Comprehensive Planning with Mike Baumann
Navigating Your Financial Future: Comprehensive Planning with Mike BaumannNavigating Your Financial Future: Comprehensive Planning with Mike Baumann
Navigating Your Financial Future: Comprehensive Planning with Mike Baumann
 
Singapore Event 2024 State of Play Slides
Singapore Event 2024 State of Play SlidesSingapore Event 2024 State of Play Slides
Singapore Event 2024 State of Play Slides
 
How to Invest in Cryptocurrency for Beginners: A Complete Guide
How to Invest in Cryptocurrency for Beginners: A Complete GuideHow to Invest in Cryptocurrency for Beginners: A Complete Guide
How to Invest in Cryptocurrency for Beginners: A Complete Guide
 
足球博彩-足球博彩在哪个软件买球-足球博彩买球软件下载|【​网址​🎉ac55.net🎉​】
足球博彩-足球博彩在哪个软件买球-足球博彩买球软件下载|【​网址​🎉ac55.net🎉​】足球博彩-足球博彩在哪个软件买球-足球博彩买球软件下载|【​网址​🎉ac55.net🎉​】
足球博彩-足球博彩在哪个软件买球-足球博彩买球软件下载|【​网址​🎉ac55.net🎉​】
 
Application Of mathematics in Finance- Time Value of Money
Application Of mathematics in Finance- Time Value of MoneyApplication Of mathematics in Finance- Time Value of Money
Application Of mathematics in Finance- Time Value of Money
 
Macroeconomic-digest-of-Ukraine-0624-Eng.pdf
Macroeconomic-digest-of-Ukraine-0624-Eng.pdfMacroeconomic-digest-of-Ukraine-0624-Eng.pdf
Macroeconomic-digest-of-Ukraine-0624-Eng.pdf
 
CRYPTOCURRENCY REVOLUTIONIZING THE FINANCIAL LANDSCAPE AND SHAPING THE FUTURE...
CRYPTOCURRENCY REVOLUTIONIZING THE FINANCIAL LANDSCAPE AND SHAPING THE FUTURE...CRYPTOCURRENCY REVOLUTIONIZING THE FINANCIAL LANDSCAPE AND SHAPING THE FUTURE...
CRYPTOCURRENCY REVOLUTIONIZING THE FINANCIAL LANDSCAPE AND SHAPING THE FUTURE...
 
Singapore 2024 Event The Way Forward Slides
Singapore 2024 Event The Way Forward SlidesSingapore 2024 Event The Way Forward Slides
Singapore 2024 Event The Way Forward Slides
 
GUIA_LEGAL_CHAPTER_2_FOREIGN EXCHANGE.pdf
GUIA_LEGAL_CHAPTER_2_FOREIGN EXCHANGE.pdfGUIA_LEGAL_CHAPTER_2_FOREIGN EXCHANGE.pdf
GUIA_LEGAL_CHAPTER_2_FOREIGN EXCHANGE.pdf
 

Balance of payments

  • 1. Adjustment of Balance of Payments’ Disequilibrium 1 Presented by Group no 4( roll no 30 to 40)
  • 2. 2 Equilibrium in Balance of Payment of Nations When demand for and supply of foreign currency in a nation in a given period are equal – it is viewed as equilibrium position in BOP. But in case of most of nations, it is not so i.e. they either enjoy a surplus BOP or deficit. It represents disequilibrium in BOP. The systematic record of all economic transactions between residents of a country and rest of world in a given period is called the Balance of Payment.
  • 3. 3 A): Unfavorable balance of payment. Balance of payment is unfavorable when the payment(import) of the country are more than its receipts(export). B): Favorable balance of payment. Balance of payment is favorable when the receipts (export) of the country are more than its payment(import). Two forms of disequilibrium
  • 4. 4 Disequilibrium in BOP are caused by : • Economic Factors. • Natural factors • population explosion • Foreign capital investment • Demonstration effect • Political Factor. • social Factor. CAUSES FOR DISEQUILIBRIUM
  • 5. 5 * Economic Factors may cause 1) Development Disequilibrium 2) Cyclical Disequilibrium 3) Secular disequilibrium and 4) Structural Disequilibrium 1. Development Disequilibrium Developing countries mostly take up activities like establishment of industries, infrastructure etc. which require greater imports of capital goods, machinery etc. In addition it also shoots up imports of consumer goods on account of increase in per capita income and aggregate demands. Thus increased developmental activities result in greater outflow of foreign currency leading to deficit in BOP.
  • 6. 6 2. Cyclical Disequilibrium It occurs due to business cycles. The cyclical changes cause disequilibrium in the balance of payment. When prices rise during prosperity and fall during depression, the country which has highly elastic demand or imports faces a fall in the value of imports and if it counties its exports it will have a surplus in the BOP and vice versa.
  • 7. 7 3. Secular Disequilibrium It mostly happens in developed countries where disposable income of people are very high. It raises in turn the cost of production and price of goods and services. Consequently, developed countries prefer to outsource goods and services from other countries where quality of goods is high and cost . of production is low. It may lead to secular disequilibrium in BOP of nation.
  • 8. 8 4. Structural Disequilibrium Sometimes notable shift comes in nature of economy of countries e.g. from agricultural to manufacturing or services. These may call for structural changes in developing alternative items, sources of supply, changes in transport channels and also costs. These structural changes may enhance imports of capital goods and consumer goods resulting in deficits in BOP. India’s BOP Disequilibrium due to Structural Changes Between 1999-2000 & 2000-2001, structural changes in India’s economy increased POL imports from $ 5.64 b. to $ 9.77 b. ; electronic goods from $ 1.47 b. to $ 2.05 b. etc.
  • 9.  Natural factors sometimes due to natural and other factors, industrial and agricultural production in the country falls. Consequently exports of fall and if import are not cut off , BOP becomes adverse. Population Explosion In the underdeveloped country aggregate consumption demand increases due to rapid increase in population. As a result of this export surplus falls down 9
  • 10.  Foreign capital investment flow.  When a country induced by profit motive makes large capital investment in the foreign countries then then this capital out flow has an adverse affect on bop capital expenditure.  Demonstration effect.  Nurkse opined that people of under developed countries try to imitate the consumption pattern of the people of the developed country. So their import increases very much and cause disequilibrium in BOP 7/4/2014BoP Disequilibrium 10
  • 11. 11 * Political Factors Political uncertainties, instability, internal disturbances, external wars etc. create threatening situation for local industry and investments. In such cases domestic production declines leading to increase in imports and outflow of capital It results in deficit in BOP as it happened in Sri Lanka, Pakistan etc. Social Factors Changes in culture, taste, preference, fashion etc. bring about changes in nature of import of consumer items first, followed by capital goods leading to deficit in BOP.
  • 12. Correction of BoP disequilibrium Automatic correction Deliberate measures Monetary measures Trade measures Miscellaneous measures Export promotion Import control
  • 13. 13 Correction of BOP Disequilibrium When BOP becomes surplus, nations enjoy the same as it offers a number of desirable situation like increased purchasing power and influence in global market. In cases of disequilibrium due to deficit, countries adopt measures to eliminate the same completely, if not possible at least reduce it.
  • 14. 14 Deficit in BOP indicates that demand for foreign exchange is higher than its supply in the nation. It leads to devaluation of local currency in relation to the foreign currency. Thereby imports become costlier and exports cheaper. So imports get reduced and exports are increased. Thereby outflow of Foreign exchanges is reduced and income is increased leading to automatic restoration of equilibrium. 1. Automatic Correction of BOP Disequilibrium
  • 15. 15 2. Deliberate Measures Govt. also adopts certain measures to control deficit BOP called ‘Deliberate Measures’ as indicated. A. Monetary Measures * Reduction in Money Supply : ( through Interest rate, deflation Cash reserve ratio, Statutory liquidity ratio , Repo , Marginal standing facility. etc.) RBI takes to control credit so that money supply in the country is reduced which leads to decline in income, purchasing power, aggregate demand and consumption. Thus imports decline and hence outflow of foreign currency. In turn exports grow and inflow of foreign currency to set right BOP disequilibrium.
  • 16.  Deflation : fall in the home currency through dear money policy resulting in a fall in cost and prices and hence stimulating exports and discouraging import.  Depreciation:  Fall in the rate of exchange of one currency in terms of another. This will make import costlier, because one has to pay more in case of depreciation of currency. So the import become very expensive. But export will become less expensive and that would result in increased export and there by automatic correction. 7/4/2014BoP Disequilibrium 16
  • 17. 17 * Interest Rate Adjustment : Inflow of Foreign Exchange in deficit BOP nation falls, so liquidity falls. So on short term basis ‘Interest rate’ is raised – leading to investments and loans coming from foreign nations improving BOP scenario. * Devaluation In case of deficit BOP, purchasing power of local currency reduces, the Govt. deliberately devalues currency. Thus imports become costlier and exports cheaper. Hence increased exports and reduced imports balance the disequilibrium of BOP.
  • 18. 18 * Exchange Control Exporters are to surrender the foreign exchange earned to RBI through authorized dealers and importers are to draw foreign exchange from authorized dealers. -- Through suitable policies from time to time, Govt. of India and RBI control imports to reduce deficit of BOP. B. Trade Measures These measures try to restore equilibrium through increasing exports and/or reducing imports.
  • 19. 19 * Export Promotion Measures Govt. of India endeavor to boost exports by reducing export duties, providing incentives, encouraging EOUs, forming EPZs, FTZs etc. * Import Control Measures Import control measures include ways and means of restricting imports through duties, quotas, licences etc.
  • 20. 20 C. Miscellaneous Measures Govt. of India tries to remove BOP disequilibrium by assortment of means like a) Attracting Foreign Investments both FDI and FPI b) Attracting NRI deposits c) Promoting tourism d) Negotiating Foreign currency loans etc.