Friday, August 28, 2009

Balance of Payments

Balance of Trade:

The balance of trade is the difference between the values of exports and imports of visible goods of a country during a given period of time. If a value of visible items of exports exceeds then the value of visible goods imports then the balance of trade is said to be favourable and vice versa.

Balance of Payments:

According to Kindle Berger “Balance of Payment is a systematic record of all economic transactions which take place among the individuals of a country and rest of the world”.

As per Harry Johnson “Balance of Payment is a difference between total receipts and total payments of a country during one year”.

It means

B = Rr – Pr

Where B = Balance of Payment, Rr = Receipts from and Pr = Payment to foreigners.

B. J Cohen says “The balance of payment is merely a way of listening receipts and payments in international transactions for a country”.

In short Balance of payments of a country is the annual record of economic relations of the country with the rest of the world. It gives the details of foreign exchange received or foreign exchange spends on various accounts.

Following items are included in the balance of payment.

1. Current Account: Current account is composed of imports and exports of visible goods.

2. Services: Transport, insurance and services of labour etc are included in services.

3. Donation: Pensions and grants are included in donation.

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