SUBMITTED BY:

MEGHA PANWARSSEI-98III SEMESTERMSC ECONOMICS

SUBMITTED TO:

MRS. MADHU BISHT

INTERNATIONAL TRADE

INTERNATIONAL TRADE International trade is the exchange of 

capital, goods, and services across international borders or territories. In most countries, such trade represents a significant share of gross domestic product (GDP). While international trade has been present throughout much of history (see Silk Road, Amber Road), its economic, social, and political importance has been on the rise in recent centuries.

It is the presupposition of international trade that a sufficient level of geopolitical peace and stability are prevailing in order to allow for the peaceful exchange of trade and commerce to take place between nations.

BALANCE OF PAYMENT

The balance of payments (BoP or BOP) of a country is the record of all economic transactions between the residents of a country and the rest of the world in a particular period (over a quarter of a year or more commonly over a year).

A country has to deal with other countries with respect to three items :

Visible items which include all types of physical goods exported and imported.

Invisible items which include all those services whose export and import are not visible. For example , transport services , medical services, etc.

Capital transfers which are concerned with capital receipts and capital payment.

ACCORDING TO KINDLE BERGERThe balance of payments of a country is a systematic record of all economic transactions between the residents of reporting country and the residents of foreign countries during a given period of time.

ECONOMIC TRANSACTIONS An agreement between a buyer and a

seller to exchange goods, services or financial instrumen

-ts. Here are some examples of activities

you engage in that would be considered transactions: 

- Buying or selling a stock- Buying a cup of coffee- Selling your freelance services- Buying or selling a house 

Transactions Can Be Internal or Externalto an Organization Transactions occur whenever a good or

service istransferred from a provider to a user Transaction costs depend on how the

transactionis organized, i.e., the governance structure − Within an organization, costs include managing and monitoring personnel and procuring inputs. − When buying from an external provider, costs can include source selection, contract management, and performance monitoring.

FEATURES OF B.O.P(i) It is a systematic record of all economic transactions between one country and the rest of the world.(ii) It includes all transactions, visible as well as invisible.(iii) It relates to a period of time. Generally, it is an annual statement.(iv) It adopts a double-entry book-keeping system. It has two sides: credit side and debit side. Receipts are recorded on the credit side and payments on the debit side.

BALANCE OF TRADE

The commercial balance or net exports (sometimes symbolized as NX), is the difference between the monetary value of exports and imports of output in an economy over a certain period, measured in the currency of that economy.

It is the relationship between a nation's imports and exports. 

A positive balance is known as a trade surplus if it consists of exporting more than is imported.

a negative balance is referred to as a trade deficit or, informally, a trade gap.

KINDS OF BALANCE OF TRADE

STRUCTURE AND FORMS OF B.O.P

Each transaction is entered on the credit and debit side of statement. But balance of payment accounting differ from business accounting in one respect:

The balance of payments account of a country is based on the principle of double-entry book-keeping

In business accounting,

• Debits(-) are shown on the left side of the statement.

• Credits(+) are shown on the right side of the statement.

In balance of payments accounting,

• Debits are shown on the right side of the statement.

• Credits are shown on the left side of the statement.

COMPONENTS OF BALANCE OF PAYMENTS

1- Current Account Balance

- BOP on current account is a statement of actual receipts and payments in short period.

- It includes a value of export and imports of both visible and invisible goods . There can either be surplus or deficit in current account.

- The current account includes: export and import of services, interests, profits, etc.

- It is the difference between the receipts and payments on account of capital account. It refers to all financial transactions.

- The capital account involves inflows and outflows relating to investments, short term borrowings/lending, and medium term to long term borrowing/lending.- There can be surplus of deficit in capital

account.- It includes: private foreign loan flow,

movement in banking capital, official capital transactions, reserves, gold movement, etc.

BOP IN CURRENT SCENARIO IN REFERENCE TO INDIA

CAUSES OF UNFAVOURABLE BOP1. DEVELOPMENT SCHEMES:The main reason for adverse balance of payments in the developing countries is the huge investment in development schemes in these countries. The propensity to import of the developing countries increases for want of capital for industrialization. The exports, on the other hand, may not increase because these countries are traditionally primary producing countries2. PRICE-COST STRUCTURE:Changes in price-cost structure of export industries affect the volume of exports and create disequilibrium in the balance of payments. Increase in prices due to higher wages, higher cost of raw materials, etc. reduces exports and makes the balance of payments unfavorable.

4. FALL IN EXPORT DEMAND:There has been a considerable decline in (he export demand for the primary goods of the underdeveloped countries as a result of the large increase in the domestic production of foodstuffs raw materials and substitutes in the rich countries. Similarly, the advanced countries also find a fall in their export demand because of loss of colonial markets. 3. CHANGES IN FOREIGN EXCHANGE RATES:Changes in the rate of exchange is another cause of disequilibrium in the balance of payments. An increase in the external value of money makes imports cheaper and exports dearer; thus, imports increase and exports fall and balance of payments become unfavourable. Similarly, a reduction in the external value of money leads to a reduction in imports and an increase in exports.

6. CYCLICAL FLUCTUATIONS:Cyclical fluctuations cause cyclical disequilibrium in the balance of payments. During depression, the incomes of the people in foreign countries fall. As a result, the exports of these countries tend to decline which, in turn, produces disequilibrium in the home country's balance of payment.

5. INTERNATIONAL BORROWING AND LENDING:International borrowing and lending is another reason for the disequilibrium in the balance of payments. The borrowing country tends to have unfavourable balance of payments, while the lending country tends to have favourable balance of payments.

MEASURES TO CORRECT DISEQUILIBRIUM

(i) EXPORT PROMOTION:Exports should be encouraged by granting various bounties to manufacturers and exporters. At the same time, imports should be discouraged by undertaking import substitution and imposing reasonable tariffs.(ii) IMPORT:Restrictions and Import Substitution are other measures of correcting disequilibrium.

(iii) REDUCING INFLATION:Inflation (continuous rise in prices) discourages exports and encourages imports. Therefore, government should check inflation and lower the prices in the country.(iv) EXCHANGE CONTROL:Government should control foreign exchange by ordering all exporters to surrender their foreign exchange to the central bank and then ration out among licensed importers.

(v) DEVALUATION OF DOMESTIC CURRENCY:It means fall in the external (exchange) value of domestic currency in terms of a unit of foreign exchange which makes domestic goods cheaper for the foreigners. Devaluation is done by a government order when a country has adopted a fixed exchange rate system. (vi) DEPRECIATION:Like devaluation, depreciation leads to fall in external purchasing power of home currency. Depreciation occurs in a free market system wherein demand for foreign exchange far exceeds the supply of foreign exchange in foreign exchange market of a country .

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