Post on 08-Apr-2018
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Trade and Balance of Payment
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Components of the trade
Imports
-bulk imports: petroleum, crude & products,
bulk consumption goods, other bulk items.-non bulk imports: capital goods, mainly
export related items
Exports-agriculture and allied products, ores and
minerals, manufactured goods, mineral
fuels.
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Determinants of Exports
External factors
Rate of growth of the economies of importing
countries
Rate of growth of world trade
Rate of change in the price level in the importing
country
Internal Factors
Rate of growth of the Indian economy
Rate of change in the domestic price level
Exchange rate
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Determinants of Imports
Rate of growth of the Indian economy
Relative price of imports
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Balance of Trade &Balance of PaymentsBalance of Trade &Balance of Payments
BoT is a nations ratio of exports to imports.BoT is a nations ratio of exports to imports.
A favorable balance (trade surplus) of trade exists whenA favorable balance (trade surplus) of trade exists when
the value of a nations exports exceeds its imports.the value of a nations exports exceeds its imports.
A trade deficit is when imports exceed exportsA trade deficit is when imports exceed exports
BoPBoP
is the difference between money coming into a countryis the difference between money coming into a country
(from exports) and money leaving the country (for(from exports) and money leaving the country (for
imports) plus money flows from other factors such asimports) plus money flows from other factors such as
tourism, foreign aid, military expenditures, and foreigntourism, foreign aid, military expenditures, and foreign
investment.investment.
Balance of payments deficit or balance of paymentsBalance of payments deficit or balance of payments
surplussurplus
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Definition
The Balance Of Payments of a country is a systematicrecord 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 from the capital
transferred to non-residents or foreigners. Reserve
Bank of India (RBI)
It is a statement of a country, which depicts thetransaction of that country with rest of the world during a
specified period of time..
A record of the value of all transactions between
residents of a country with outsiders..
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BOP Surplus and Deficit
In terms of the supply and demand of a nations
currency, there is:
A balance of payments surplus if quantity
demanded for a currency exceeds quantity
supplied, putting upward pressure on the
value of the nations currency.
A balance of payments deficit if quantitysupplied of a currency exceeds quantity
demanded, putting downward pressure on the
value of the nations currency.
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Purpose of BoP
1. Measures all financial and economic transactions overa specified period of time.
2. Double-entry bookkeeping
a. Currency inflows = credits
earn foreign exchange
b. Currency outflows = debits
expend foreign exchange
3.Three Major Accounts:
a. Current
b. Capital
c. Official Reserves
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Importance of BoP
TheB
oP is an important indicator of pressure ona countrys foreign exchange rate .
The BoP helps to forecast a countrys market
potential, especially in the short run.
Changes in a countrys BoP may signal theimposition or removal of controls over payment
of dividends and interest, license fees, royaltyfees, or other cash disbursements to foreignfirms or investors.
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Components of BoP
Current account
Capital account
Financial account
Net errors and omissions account
Reserves and related items: official reserve
account
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Current account
Net export/import of goods (trade balance)
Net export/import of services
Net income (investment income from direct and
portfolio investment plus employeecompensation)
Net transfers (sums sent home by migrants andpermanent workers aboard, gifts, grants andpensions)
It includes :
- Invisibles (non-merchandise trade)
- Merchandise trade
- Non monetary sale or purchase of gold
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Merchandise or Trade balance: (BoT)GOODS
- Manufactured goods- Semi-finished goods and components- Energy products- Raw Materials- Consumer goods(i) Durable goods
(ii) Non-durable goods
- Capital goods (e.g. new plant and equipment)
SERVICES
- Banking, insurance , legal and consultancy services- Other financial services including foreign exchange and derivatives trading- Tourism industry- Transport and shipping- Education and health services- Services associated with research and development- Cultural arts
UNILATERAL TRANSFERS- Gifts- government transfers to foreigners(E.g., Foreign aid or wheat fromstockpiles)
- Private remittances of wages earned abroad
- interest payments, profits and dividends from external assets locatedoutside the country.
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Capital account
Capital transfers related to the purchase and sale offixed assets such as real estate
It comprises long term and short-term inflow and out flowof funds under the capital account receipts andpayments
Foreign equity investment in India-Direct investment: directly investing in India
- Through port-folio: purchase of Indian companies stock throughforeign institutional investors or subscriptions by non-residentinvestors to GDR and ADR issues by Indian companies.
Loan
- Concessional loans received by the government or public sectorbodies.-Long and medium term borrowings from the commercial capitalmarket in the form of loans, bonds
- Short-term credit
Other Investment
- transactions in currency, bank deposits, trade credits, etc
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- Net foreign direct investment- Net portfolio investment
- Other financial items
Net errors and omissions account- Missing data such as illegal transfers
Reserves and related items: official reserveaccount
- Changes in official monetary reserves including gold,foreign exchange, and IMF position.
Financial account
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Countries with which India trade
OECD
(1)European union
-France
-Belgium
-Germany
-UK
-Italy-Netherlands
(2) North America
-Canada
-USA
(3) Other OECD
-Australia
-Japan
-Switzerland
OPEC
- Iran
- Iraq
- Indonesia
- Saudi Arabia
- UAE
Eastern Europe- Russia
Developing countries
- China
- Hong-Kong
- South Korea
- Malaysia
- Singapore
- Thailand
- SAARC
- Africa
- others
Africa
-Benin
-Egypt
-Kenya
-South Africa
-Sudan
-Tanzania
-Zambia-USA
LAC
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CountryCountry StrengthsStrengths
United StatesUnited States Technology,Technology,R & D SpendingR & D Spending
FinlandFinland Univ. Enrollment, Efficient LegalUniv. Enrollment, Efficient LegalSystem, Business EthicsSystem, Business Ethics
TaiwanTaiwanCellCell--phone Ownership,phone Ownership,
Tech. Innovation,Tech. Innovation,
Local Firms CompetitivenessLocal Firms Competitiveness
SingaporeSingapore Savings Rate, Math/ScienceSavings Rate, Math/ScienceEducation, Political TrustEducation, Political Trust
SwedenSweden H.S. Enrollment, Press Freedom,H.S. Enrollment, Press Freedom,Phone AccessPhone Access
Global CompetitivenessGlobal Competitiveness
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References
http://indiabudget.nic.in/
http://www.eximbankindia.com/anr0910.pd
f http://rbi.org.in/scripts/PublicationsView.as
px?id=12304
http://gcr.weforum.org/gcr201
0/