This document discusses tariffs, quotas, and exchange controls. It provides information on the advantages and disadvantages of quotas, noting they can protect infant industries but lead to higher prices when used by multiple countries. Exchange controls are then defined as government restrictions on foreign currency transactions used to manage a country's currency and balance of payments. Various exchange control methods like blocked accounts and multiple exchange rates are outlined. The document also discusses factors that can cause imbalance in a country's balance of payments and measures to correct such imbalances, including exchange rate systems.

2. TARIFF

12. QUOTAS ADVANTAGES &
DISADVANTAGES
 Quotas are usually employed to protect infant
industries and keep market entry costs low for
domestic producers. Often the quotas last long after
the industry has matured. Other uses for quotas are to
protect strategic industries such as defense and
agriculture. In market environments where imports
are on the rise, quotas are more protective than tariffs.

13. QUOTAS ADVANTAGES &
DISADVANTAGES
 When one country uses quotas, its trading partners do
the same and cite the same reasons. The end result
is less exporting opportunity for all producers and
higher prices for all consumers. Quotas are
also cumbersome for the country using them. They
require a lot of paperwork indicating exact amounts of
products for each country facing a quota. It is also
difficult to measure the precise degree of protection
quotas offer.

14. EFFECTS OF QUOTA & TARRIFS

15. EXCHANGE CONTROL
 Exchange Control is meant for maintaining the
Currency of a Country.
 Exchange controls are government-imposed controls
and restrictions on private transactions conducted in
foreign currency.
 Increase foreign currency by Exporting more goods

16. Exchange Control - Definition
 “Foreign Exchange Control” is a method of state
intervention in the imports and exports of the country,
so that the adverse balance of payments may be
corrected”. Here the government restricts the free play
of inflow and outflow of capital and the exchange rate
of currencies.

17. EXCHANGE CONTROL - OBJECTIVES

20. EXCHANGE CONTROL - METHODS
 Intervention
The central bank or government of a country may
intervene in the foreign exchange market with a view to
raise or lower the exchange value of home currency
relative to foreign currency through the sale or purchase
of the former.
 Exchange Clearing Agreements
It is a revolutionary innovation to the international and
commercial systems. Clearing between Individual
importers and exporters are not allowed. Payment is
made through the central bank of the country

21. EXCHANGE CONTROL - METHODS
 Blocked Accounts
Blocked accounts imply restrictions on the transfer of foreign
capital or transfer of funds by foreigners to their home
countries. When the policy of blocked accounts is adopted,
the central bank deposits assets of foreign nationals in their
accounts but they are not allowed to convert these credit
balances into their home currencies for some period.
 Payment Agreements
To overcome the difficulties of delay involved in settling
international payments . The Payments are made through
banks

22. EXCHANGE CONTROL - METHODS
 Gold Policy
Government sets a control on gold reserves
 Rationing of Foreign Exchange
Under the system, all foreign exchange earnings are to be
surrendered by exporters to the central bank at a fixed
change rate and then allocation is made by the
government for imports on a priority basis in fixed
amount only.

23. EXCHANGE CONTROL - METHODS
 Multiple Exchange Rates
The system of multiple exchange rate is adopted to
reduce the balance of payment. Under the system
different rates of exchange are set up for different exports
and imports.

24. Merits of Exchange Control
(i)The government monopolies the foreign exchange
business and exercises full control over the
foreign exchange market.
(ii) The rate of exchange is fixed officially by the
government and the market forces of demand and
supply have no effect on its determination.
(iii) The government centralises all foreign exchange
operations in the hands of the central bank
which administers various foreign exchange regulations.

25. Merits of Exchange Control
(iv) The exporters have to deposit their all foreign
exchange earnings with the central banks.
(v) Imports of the country are regulated and the
importers are allocated foreign exchange at the official
rates to enable them to make payments for the goods
imported.
(vi) The government or the central bank determines the
priorities in the allocation of scarce foreign currencies.
(vii) As a result of exchange control, the volume of
imports gets automatically reduced and there is a
favourable impact on country’s balance of payments.

26. Demerits of Exchange Control
1. It develops economic nationalism but obstructs economic co-operation
internationally.
2. It leads to the contraction of foreign trade and the world’s welfare at
large.
3. It encourages bilateral trade but deprives the country from the benefits
of multi-lateral trade.
4. It vests extraordinary powers in the hands of government officials and
there are chances of corruption.
5. Exchange control is an instant remedy to check disequilibrium in the
balance of payments. But, in the long-run it results in the creation of
basic disequilibrium which harms the economy at large.

27.  The balance of payments (BOP) is the method
countries use to monitor all international monetary
transactions at a specific period. Usually, the BOP is
calculated every quarter and every calendar year.
 All trades conducted by both the private and public
sectors are accounted for in the BOP to determine how
much money is going in and out of a country. If a
country has received money, this is known as a credit,
and if a country has paid or given money, the
transaction is counted as a debit.

28. Causes of Disequilibrium in
Balance of Payments
 Unfavorable Balance of Trade
 Cyclical Fluctuations, their Phases, and Amplitudes
 Burden of Payment of Foreign Debt
 Speedy Economic Development
 Inadequate Promotion of Exports
 Inflationary Spiral at Home
 Capital Movements

29. Causes of Disequilibrium in
Balance of Payments
 Natural Factor
 Demonstration Effect
 High Population Growth
 Political Factors
 Terms of Trade
 Miscellaneous Factors

30. Remedial Measures to correct
the disequilibrium in BOP
 Export Promotion
 Import
 Reducing Inflation
 Exchange control
 Devaluation of domestic currency
 Depreciation

31. Foreign Exchange Rate
 Foreign exchange, or forex, is the conversion of one
country's currency into another. In a free economy, a
country's currency is valued according to the laws of
supply and demand.

32. Foreign Exchange Rate
 Foreign Exchange (forex or FX) is the trading of one
currency for another. For example, one can swap the
U.S. dollar for the euro. Foreign
exchange transactions can take place on the foreign
exchange market, also known as the forex market.

33. Types of Foreign Exchange
Rate
 Flexible Exchange Rate
 Fixed Exchange Rate

34. Flexible Exchange Rate
 A floating exchange rate is a regime where the
currency price of a nation is set by the forex market
based on supply and demand relative to other
currencies. This is in contrast to a fixed exchange rate,
in which the government entirely or predominantly
determines the rate.

35. Merits of Flexible Exchange Rate
 Problems of Undervaluation and Overvaluation are
Avoided
 Promotes Growth of Multilateral Trade
 Flexible Exchange Rates does not Necessarily Show
Large Fluctuations
 It Ensures Individual Freedom
 It frees the Government from BOP

36. Demerits of Flexible Exchange
Rate
 Flexible Exchange Rates Create a Situation of
Instability and Uncertainty
 Dampening Effect on Foreign Trade
 Widespread speculation with a destabilising effect
 Provides an Inflationary Bias to an Economy:

37. Fixed Exchange Rate System
 A fixed exchange rate is a regime imposed by a
government or central bank which ties the
official exchange rate of the country's currency with
the currency of another country or the gold price.

38. Merits of Fixed Exchange Rate
System
 Prices more predictable
 Certainty
 No Depreciation and Appreciation of Currency
 It removes dangers of speculation
 Serves as an anchor against inflation
 Promotes economic integration of the world
 Promotes growth of internal money market and
capital markets
 Suitable for small countries.

39. Demerits of Fixed Exchange Rate
System
 Countries which follow the fixed exchange rate, should
maintain large reserves of foreign exchange.
 Countries adopt strict and complicated exchange
control measures.
 Requires skilled persons to operate
 Not possible to have fixed exchange rate for long
period
 BOP disequilibrium can be solved only temporarily

40. Exchange rate for developing
countries
 Research indicates that there is no clear choice on
what exchange rate regime works best for developing
countries. As one exchange rate might be beneficial for
one country but could be problematic for another. It is
because all countries have different policy objectives
and different economic environment.

41. Exchange rate for developing
countries
 Floating exchange rate is where the government do not
have an exchange rate target. It allows the economy to
pursue an independent monetary policy strategy such
as inflation targeting and the market determines the
exchange rate level. The exchange rate will be
determined by the supply and demand forces.

42. Exchange rate for developing
countries
Fixed exchange rate policy is another policy
where central banks will protect exchange
rate. In this case, policy maker will allow value
of currency to move within certain band limit
with reference to other country or basket of
currency, that is usually their leading trading
partner.

43. Who Determines Exchange Rates
in India
 Exchange rate system before LPG era
 Exchange rate system after LPG era
THANK YOU