BoP, DISEQULIBRIUM,

CORRECTION

Systematic and summary record

Shows country’s economic and financial transaction with rest of the world

Measures over a period of time.

Balance of Payment

As on 25/08/2012,foreign exchange reserve $297 B down by $258 M

Table- Balance of Payments account

Credits(+) (Receipts) Debits(-)Payments Current AccountExports Imports(a) Goods Goods(b) Services Services(c) Transfer payments Transfer payments

Capital Account Borrowing from Lending to Foreign Countries

Foreign countries Direct InvestmentsBy Foreign countries Direct Investments in

Foreign countries Official Settlements Account Increase in Foreign Official Holdings Increase in Official Reserve of Gold and Foreign

Currencies Errors and Omissions

BoP for April-June (Q1) of 2010-11

Inequality in the amount of foreign exchange of one country with the rest of the world

SURPLUS SUPPLY DEMAND DEFICIT SUPPLY DEMAND

DISEQULIBRIUM

Causes of disequilibrium in BoP

Temporary causes National Income Inflation Economic Development Borrowing and Lending Change in exchange rate Political factors-like instable govt.

Correction of BoP disequilibrium

Automatic correction

Deliberate measures

Monetary measures

Trade measures Miscellaneous measures

Export promotion

Import control

Monetary contraction/expansion Devaluation/valuation Exchange control

Monetary Measure

Foreign loans Incentives for foreign investments Tourism development Incentives for foreign remittances Import substitution

Miscellaneous measure

Abolition/reduction of export duties

Export subsidies Export incentives

Export promotion Import control

• Import duties• Import control• Import prohibition

Exchange depreciation (price effect) or devaluation (by government)

Deflate the currency Tariffs Import quotas Export duties

General measure

…………QUESTION?