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TRADE refers to
exchange of goods
and services
between individuals
or nations
HOME TRADE
IMPORT: purchase goods and services by
domestic country from foreign countries
EXPORT: sale goods and services by domestic
country to foreign countries.
ENTREPOT: goods or merchandise bought from
one country with a view to sell it for other
countries
SURPLUS OR FAVORABLE BALANCE OF TRADE
Visible exports > Visible imports
BALANCED TRADE
Visible exports=Visible imports
DEFECIT OR UNFAVORABLE BALANCE OF TRADE
Visible exports < Visible imports
BALANCE OF PAYMENTS
It also includes import and export of invisible services.
Balance of payments is the difference between the value of visible
and invisible items of imports and exports.
SURPLUS when Exports > Imports
BALANCED when Exports=Imports
DEFECIT when Exports<Imports
STRUCTURE OF BALANCE OF
PAYMENTS
Current account Capital account Official Reserves account
Trade account
Invisible account
Transfer payments
ERRORS AND OMISIONS: It is of a balancing entry and is needed to offset the
overstated and understated components
Foreign investment
Foreign investment
Banking capital
Monetar movements
Direct
Portfolio
CURRENT ACCOUNT:
TRADE ACCOUNT: Transactions related to goods are recorded . It includes the value
of visible goods imported and exported.
INVISIBLE ACCOUNT: Transactions related to services are recorded . They include
items like banking , insurance , shipping , interest on investments etc.
TRANSFER PAYMENTS: unilateral payments made to and received from foreign
countries.EG. Financial aid for welfare programmes , social security and subsidies fo
certain business firms
2.CAPITAL ACCOUNT
Deals with the
payments of debts
and claims
Includes capital transactions such
as borrowing and lending of loans ,
repayment of loans ,sale and
purchase of assets from foreign
countries
Capital movements may take
place either on government level
or private account
If a country receives excess of foreign exchange than the foreign
exchange expenditure it results in surplus.
This surplus is shown in the reserves account
It indicates the change in a country’s reserve assets during a
year . In the form of gold, foreign currencies , SDR’s
3.OFFICIAL RESERVE ACCOUNT
Balance of payments
Current account Capital account
Balance of
trade
Balance of Trade = Rows (1) and (5)
= 550-800 = -250
Balance of Services = Rows (2) and (6)
= 150-50= 100
Balance of Unilateral Transfers = Rows (3) and (7)
= 100-80 = 20
Balance of Payment on Current A/c = -250 + 100 + 20 = -130
Balance of payment on Capital A/c = Rows (4) and (8)
= 200-70= 130 Balance of Payment = Rows (1 to 4) – (5 to 8)
= (550 + 150 + 100 + 200) – (800 + 50 + 80 + 70)
= 1000- 1000 = Zero
A deficit in balance of payment on current account (i.e., -130 millions ) has been offset by
surplus in BOP on capital account (i.e., + 130 ). As a result, balance of payment is in equilibrium.
BALANCE OF TRADE BALANCE OF PAYMENTS
Includes only the visible
merchandise items of exports anf
imports.
It gives a partial picture of the
economic relations of a country
with the other.
It may be favourable ,
unfavourable or equilibrium
It includes visible and invisible
items of import and export.
It is comprehensive and
complete picture of the economic
relations of a country with other.
It always remains balanced .
trade
trade
trade

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trade

  • 1.
  • 2. TRADE refers to exchange of goods and services between individuals or nations
  • 3.
  • 5.
  • 6. IMPORT: purchase goods and services by domestic country from foreign countries EXPORT: sale goods and services by domestic country to foreign countries. ENTREPOT: goods or merchandise bought from one country with a view to sell it for other countries
  • 7.
  • 8.
  • 9.
  • 10.
  • 11.
  • 12. SURPLUS OR FAVORABLE BALANCE OF TRADE Visible exports > Visible imports BALANCED TRADE Visible exports=Visible imports DEFECIT OR UNFAVORABLE BALANCE OF TRADE Visible exports < Visible imports
  • 13. BALANCE OF PAYMENTS It also includes import and export of invisible services. Balance of payments is the difference between the value of visible and invisible items of imports and exports. SURPLUS when Exports > Imports BALANCED when Exports=Imports DEFECIT when Exports<Imports
  • 14. STRUCTURE OF BALANCE OF PAYMENTS Current account Capital account Official Reserves account Trade account Invisible account Transfer payments ERRORS AND OMISIONS: It is of a balancing entry and is needed to offset the overstated and understated components Foreign investment Foreign investment Banking capital Monetar movements Direct Portfolio
  • 15. CURRENT ACCOUNT: TRADE ACCOUNT: Transactions related to goods are recorded . It includes the value of visible goods imported and exported. INVISIBLE ACCOUNT: Transactions related to services are recorded . They include items like banking , insurance , shipping , interest on investments etc. TRANSFER PAYMENTS: unilateral payments made to and received from foreign countries.EG. Financial aid for welfare programmes , social security and subsidies fo certain business firms
  • 16. 2.CAPITAL ACCOUNT Deals with the payments of debts and claims Includes capital transactions such as borrowing and lending of loans , repayment of loans ,sale and purchase of assets from foreign countries Capital movements may take place either on government level or private account
  • 17. If a country receives excess of foreign exchange than the foreign exchange expenditure it results in surplus. This surplus is shown in the reserves account It indicates the change in a country’s reserve assets during a year . In the form of gold, foreign currencies , SDR’s 3.OFFICIAL RESERVE ACCOUNT
  • 18. Balance of payments Current account Capital account Balance of trade
  • 19.
  • 20. Balance of Trade = Rows (1) and (5) = 550-800 = -250 Balance of Services = Rows (2) and (6) = 150-50= 100 Balance of Unilateral Transfers = Rows (3) and (7) = 100-80 = 20 Balance of Payment on Current A/c = -250 + 100 + 20 = -130 Balance of payment on Capital A/c = Rows (4) and (8) = 200-70= 130 Balance of Payment = Rows (1 to 4) – (5 to 8) = (550 + 150 + 100 + 200) – (800 + 50 + 80 + 70) = 1000- 1000 = Zero A deficit in balance of payment on current account (i.e., -130 millions ) has been offset by surplus in BOP on capital account (i.e., + 130 ). As a result, balance of payment is in equilibrium.
  • 21.
  • 22. BALANCE OF TRADE BALANCE OF PAYMENTS Includes only the visible merchandise items of exports anf imports. It gives a partial picture of the economic relations of a country with the other. It may be favourable , unfavourable or equilibrium It includes visible and invisible items of import and export. It is comprehensive and complete picture of the economic relations of a country with other. It always remains balanced .