Question

Briefly explain the 4 main purposes for nation's balance of payments

Answer 1

A balance of payment is an essential document in the finance department or transaction as it gives the status of a country and it’s economy. The importance of the balance of payment can be calculated from the below points:

• It examines the transaction of all the export and import of goods and services for a given period
• It helps the government to analyse the potential of a particular industry export growth and formulate policy to support that growth
• It gives the government a broad perspective on a different range of import and export tariff. The government then takes measure to increase and decrease the tax to discourage import and encourage export respectively and be self-sufficient
• If the economy urges support in the mode of import, the government plan according to the BOP and divert the cash flow and technology to the unfavourable sector of the economy, and seek future growth
• The Balance of Payment also indicates the government to detect the state of the economy, and plan expansion, monetary, and fiscal policy establish on that