The balance of payments is a systematic record of a country's external economic transactions over a period of time. It includes visible and invisible items, recording transactions of both goods, services, and capital. The balance of trade is part of the current account and records only merchandise exports and imports, while the balance of payments provides a more complete picture of a country's international economic relations by also including financial and other non-physical flows. Imbalances in the balance of payments can be caused by factors like trade cycles, economic development, national income levels, and external borrowing. Currency appreciation means the domestic currency gains value against foreign currencies, while depreciation means it loses value.

1. UNIT - II

2. 1.The balance of payments is a systematic record of economic
transactions of the residents of a country with rest of the world during
a given period of time.
2. Balance of Payments is a systematic record of a country’s external
transactions during a given period of time.
Meaning of Balance of Payments

3. Balance of Trade
Meaning of Balance of Trade:
• Balance of trade refers to the difference between the monetary value of exports
and imports in an economy a given period of time (only visible goods).
Types of Balance of Trade (BOT)
• Favorable BOT: E > M
• Unfavorable BOT: M>E
• Equal BOT: E = M

4. Difference Between BOT and BOP
BOT BOP
1. It records visible items only Its include both visible and invisible items
1. It does not records transaction of
capital
it records transaction of capital nature
1. It records only merchandise transaction
It records the transaction of both goods and
service
1. It is part of current account of BOPs
Its includes balance of trade, balance of service
and capital transaction
1. It is a partial study of the balance of
payments
It is a complete picture of the country’s
international relations
6.It is not true indicator of economic
relation
It is true indicator of economy performance of an
economy

5. CAUSES OF DISEQUILIBRIUM IN THE BOPS:
• Trade cycle
• Population Growth
• Economic Development
• Demonstration Effect
• National Income
• Huge External Borrowing
• Changing Export Demand
• Inflation
• Political Instability
• Natural Factors

7. Rupee Appreciation
• Currency appreciation means increase in value of domestic currency against
foreign currency, in other words it can buy more units of foreign currency than
earlier.
• Example:
• Suppose today USDINR is trading at Rs. 69/- per USD against yesterday’s
closing of Rs. 70 /- per USD, this means INR has appreciated by Rs. 1 /- per
USD. In other words, for purchasing 1 USD trader has to pay 1 Rupee less.

8. Rupee Depreciation
• Currency depreciation means fall in the value of domestic currency against
foreign currency and domestic currency can buy less units of foreign currency
than earlier.
• Example:
• Suppose today EURINR is trading at Rs. 81/- per Euro against yesterday’s
closing of Rs. 80 /- per Euro, this means INR has depreciated by Rs. 1 /- per
Euro. In other words, for purchasing 1 Euro now trader has to pay 1 Rupee
more.