2. Balance Of Trade:
Introduction:
Balance:
A state of equilibrium or equal distribution
of weight ,amount etc.
Trade:
The act or process of buying ,selling or
exchange commodities at either wholesale
within country or between countries . Also
called domestic trade or foreign trade.
3. Types of Trade:
Domestic trade:
Wholesale:
The sale of good in large quantities.
Retail:
The sales of good to ultimate
consumers usually in small
Quantities.
4. International trade:
Export:
Send goods to another country for
sale.
Imports:
To bring a product into a country for trade or sale.
Enterpot trade:
Trade in which imported goods are re-exported with or without any
additional processing or repackaging
5. ADVANTAGES AND CHALLENGES
TO EXPORTS
ADVANTAGES CHALLENGES
• EARNING MORE MONEY
• INCREASED SALES AND PROFITS
• UN WASTAGE OF THINGS
• GAIN GLOBAL SHARES
• LOWER PER UNIT COSTS
• HIGH TRANSPORTATION FEES
• ENTERING AN EXPORT AND BUSINESS
REQUIRES CAREFUL PLANNING
• MARKET INFORMATION
• FINANCIAL RISK
• SECURITY REASONS
6. ADVANTAGES AND CHALLENGES OF IMPORTS
ADVANTAGES
• LOWER PRICE RATE
• HIGH QUALITY
• CONSUMER BENEFITS
CHALLENGES
• NEEDS FUNDS TO IMPORTING
• RISK TO SALE
• TRANSPORT COSTS
7. Balance of Trade:
It is the comparison between
value of export and imports of the
physical items (goods , not services) of a
country in a given period of time usually
a year.
8. A country has to deal with other countries in respect of 3
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. e.g. transport services, medical
services etc.
Capital transfers: which are concerned with capital receipts
and capital payment.
9. TYPES OF BALANCE OF TRADE:
•FAVOURABLE / SURPLUS
BALANCE.
•UNFAVOURABLE /ADVERSE
BALANCE.
10. Favourable Balance:
When the value of the export of the country is
greater than imports of the country then balance of trade is said is said to be
favorable.
(Exports>Imports)
Unfavourable Balance:
When the value of the exports of the country is
less than imports of the country then balance of trade it said to be
unfavorable.
(Exports<imports)
11. Causes of
unfavorable balance
of trade
High
Imports
Low
Production
High
Population
Low
Quality of
Goods
Imports of
Consumer
Goods
Currency
Value
Increase in
oil Prices
15. Balance of payment:
It is the record of all economic
transaction between the resident of the
country and rest of the world in
particular period of a year or more
commonly over a year.
16. Types of balance of payment
• FAVOURABLE / SURPLUS BALAN
• UNFAVOURABLECE /ADVERSE BALANCE
17. Favourable Balance:
If total receipts are more than total payments ,the BOP is
said to be favorable
(Receipts>Payments)
Unfavourable Balance:
If total receipts are less than total payments,the
BOP is said to be unfavorable.
(Receipts<Payments)
18. Balance of payment = Balance of visible items +balance of invisible items
Components of BOP
The three major components of
balance of payment are as follows:
1.Current Account
2.Capital Account
3.Balancing Item
19. Components of BOP
1. Current Account
It refers to an account which records all the transactions relating to export and
import of goods and services and unilateral transfer
It contains the receipts and payments relating to all the transactions of visible
items, invisible items and unilateral transfers
It shows the net income generated in the foreign sector
20. Components of BOP
Components of Current Account
Export and Import of Goods (Merchandise Transactions or
Visible Trade)
Export and Import of Services (Invisible Trade)
Unilateral or Unrequited Transfers to and from abroad (One
sided Transactions)
Income receipts and payments to and from abroad
21. Components of BOP
2. Capital Account
It records all those transactions, between the residents of a country and the
rest of the world, which cause a change in the assets or liabilities of the
residents of the country or its government
Capital Account is used to:
It is related to claims and liabilities of financial nature
a. Finance deficit in current account; or
b. Absorb surplus of current account.
22. Components of BOP
Components of Capital Account:
Borrowings and landings to and from abroad
Investments to and from abroad
Change in Foreign Exchange Reserves
23. Components of BOP
3. Balancing Item
It is simply an amount that accounts for any statistical errors and
assures that the current and capital accounts sum to zero
By the principles of double entry accounting, an entry in the
current account gives rise to an entry in the capital account, and
in aggregate the two accounts automatically balance
24. Components of BOP
It may be positive or negative
A balance isn't always reflected in reported figures
for the current and capital accounts, which might, for
example, report a surplus for both accounts
Components of Balancing Item
25. Causes of Unfavorable
Balance of Payment
Addition in
Imports
Slow growth
in production
Less Exports
Affect of
Inflation
Restriction on
developing
countries
Defense
Spending
27. BOPvs. BOT
BOP BOT
1. It is a narrow term.
2. It includes only visible items.
3. It can be favorable or unfavorable.
4. BOT = Net Earnings on Exports-
Net Payment for imports
1. It is a broad term.
2. It includes all transactions related to
visible, invisible and capital transfers.
3. It is always balances itself.
4. BOP = Current Account + Capital
Account + or - Balancing item (
Errors and omissions)
30. Causes
• Economic factors
Imbalance between export & Import
New Source of supply & new substitutes
High Domestic Price
• Political factors
Instability & Disturbance cause large capital outflow
• Social factors
31. Conclusion
It is concluded that;
balance of trade is the exchange of
physical/visible items whether balance of payment is the
exchange of both visible and non-visible items . In a country if,
there is favorable balance of payment and trade then the country
can progress and can compete with other developed countries in
the world.
