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Balance Of Payment - International Marketing

MBA VI sem - International Market

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Balance Of Payment - International Marketing

  2. 2. Balance of Payment • Balance of Payment of a country is a systematic record of all economic transactions between a country & rest of the world, for a given financial year. BOP is the difference between receipts from and payments to foreign countries. BOP is favorable if receipts exceed payments.
  3. 3. Balance of Payment •“The balance of payments of a country is a systematic record of all economic transactions between the residents of a country and the rest of the world. It presents a classified record of all receipts on account of goods exported, services rendered and capital received by residents and payments made by them on account of goods imported and services received and capital transferred to non-residents or foreigners.” –Reserve Bank of India
  4. 4. Components Current Account • Import and Export of goods • Import and Export of services • Unilateral transfers from one country to another Capital Account • Foreign Investment • FDI & portfolio Investment • Loans • Commercial Borrowings, External Assistance & Banking Capital Transactions
  5. 5. Calculation •Current Account Balance = •Balance of Visible Trade(goods) + •Balance of Invisible Trade(services) + • Balance of Unilateral transfers •Capital Account Balance = • Inflow of foreign exchange – outflow of foreign exchange •Official Reserves: The holdings of foreign reserves and gold by official institutions like the central bank Overall Balance of Payment = Current Account Balance + Capital account balance + Official Reserve Account
  6. 6. BOP Disequilibrium •Current amount deficit (CAD) refers to excess of value of imports of goods & services over value of exports of goods and services and investment income.
  7. 7. Causes • Fixed Exchange Rate • Economic Growth • Decline in Competitiveness • Recession in other Countries • Borrowing Money • Demonstration Effect • Development Programmes • Natural Factors • Poor Marketing Strategies
  8. 8. Crisis – Factors and Causes •Economic factors • Huge development expenditure owing to which there are large scale imports • Business cycles in terms of recession, depression, recovery and boom • High rate of inflation running up to large scale imports of essential goods • Decline of import substitutes which would necessitate and increase in imports • Change in cost structure of trading partners •Political factors • Political Instability leading to decline in FDI and FII • Populism policies which may encourage imports •Social factors • Change in tastes and preferences leading to demand changes • Cross border prejudices which may lead to expensive sources of imports
  9. 9. Crisis in India 1. Trade Deficit  Import liberalization  Increase in prosperity to import  Oil Crisis  Negative Attitude towards Indian Goods 2. Inflation 3. Fiscal Deficit
  10. 10. Steps to Overcome 1. Monetary Measure • Inducing Deflation • Depreciation or Devaluation 2. Non – Monetary Methods • Tariffs • Quotas • Export Promotion • Import Substitution
  11. 11. Measures to Correct BOP Deficit • Acquisition of Foreign Currency • Devaluation • Discouraging Imports • Foreign Assistance • Foreign Investment Policy • Removing Fiscal Imbalace • Partial Account Convertibility
  12. 12. THANK YOU