balance of payment

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BALANCE OF PAYMENT : 

BALANCE OF PAYMENT

BALANCE OF PAYMENT : 

Balance of Payments is a systematic and summary record of a country’s economic and financial transactions with the rest of the world over a period of time These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers. BALANCE OF PAYMENT

BALANCE OF PAYMENT-SURPLUS : 

India's balance of payments surplus was lower by $1.88 billion for Q1 FY 2003 at $ 4.31 billion, as compared to a surplus of $6.19 billion in the same period the previous year BALANCE OF PAYMENT-SURPLUS

BALANCE OF PAYMENT-DEFICIT : 

The trade deficit has increased to $2.7 billion from $2.3 billion in the quarter as merchandise exports and imports being at $14.6 billion and $17.3 billion (on the payment basis) as compared to $12.3 billion and $14.6 billion in the corresponding period in the previous year. BALANCE OF PAYMENT-DEFICIT

TYPES OF BALANCE OF PAYMENT : 

Current Account Capital Account Financial Account TYPES OF BALANCE OF PAYMENT

CURRENT ACCOUNT : 

Current account includes Trade in merchandise (raw materials and final goods), Services (transportation, tourism, business services, and royalties), Income (from salaries and direct, portfolio, and other types of investment), Current transfers (workers’ remittances, donations, grants, and aid). CURRENT ACCOUNT

CAPITAL ACCCOUNT : 

The capital account all international capital transfers. It includes Monetary flows associated with inheritances, migrants’ transfers, Debt forgiveness, The transfer of funds received for the sale or acquisition of fixed assets, The acquisition or disposal of intangible assets. CAPITAL ACCCOUNT

FINANCIAL ACCOUNT : 

The financial account includes Government-owned international reserve assets (foreign exchange reserves, gold), Foreign direct investment, Private sector assets held abroad, Assets owned by foreigners, International monetary flows associated with investment in business, real estate, bonds, and stocks. FINANCIAL ACCOUNT

DISEQUILIBRIUM : 

Though the credit and debit are written balanced in the balance of payment account, it may not remain balanced always. Very often, debit exceeds credit or the credit exceeds debit causing an imbalance in the balance of payment account. Such an imbalance is called the disequilibrium. Disequilibrium may take place either in the form of deficit or in the form of surplus. DISEQUILIBRIUM

TYPES OF DISEQUILIBRIUM : 

Structural Disequilibrium- structural change Cyclical Disequilibrium- change in trade cycle Technological Disequilibrium- new techniques of production Short run Disequilibrium- temporary basis Long run or Secular Disequilibrium- persistent Monetary Disequilibrium- inflation or deflation TYPES OF DISEQUILIBRIUM

CAUSES OF DISEQUILIBRIUM : 

Population Growth- more population results in more imports Development Programmes-developing countries plan programmes to decrease imports Demonstration Effect- less developed countries imitate developed country’s lifestyle Natural Factors-rains, floods result in imports Cyclical Fluctuations- recessions CAUSES OF DISEQUILIBRIUM

CAUSES OF DISEQUILIBRIUM : 

Inflation- increase in income Poor Marketing Strategies- poor marketing facilities result in huge deficits. Flight Of Capital- moving capital from developing to developed countries. Globalisation- increasing competition. CAUSES OF DISEQUILIBRIUM

METHODS : 

Rectifying the balance of trade- avoiding excess of imports over exports. Deflation- reducing quantity of money in circulation. Exchange control- government enforces complete monopoly of buying and selling of foreign exchange in the foreign exchange market. International Monetary Fund- promoting exchange stability and facilitating the settlement of international transactions. METHODS

CONCLUSION : 

Current account deficits are financed through non-debt-creating capital flows. Large and unsustainable deficits can transform into chronically unfavorable balance-of-payments positions that may affect the stability of the currency. Correcting such unfavorable positions is done through the adoption of stabilization programs that sometimes are supported by the International Monetary Fund through the provision of short-term financing to ease the burden of temporary problems. CONCLUSION

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