Question

this question relative to international trade

The measurement of all international economic transactions that take place between the residents of a country and foreign residents is called the balance of payments (BOP). List and explain three reasons why host-country BOP data is important to managers and investors.

Answer 1

Balance of payment for the host country is important to the managers and investors because of these reasons-

A. Balance of payments will be helpful in prediction of forecasting a market potential for country in the short-run because this will be reflecting the the currency deficits and the currency surplus of an economy and it will be showing that a country will be experiencing a serious trade deficit is unlikely to import more, as it would be doing if if it was going through a Trade surplus. It will try to increase the investments that will increase the export in the country.

B. Balance of payment will be an important indicator in reflection of pressure on the foreign exchange rate of a country and it is reflecting the potential of a company which is trading with another company in that country or investing into that country to experience the foreign exchange gains or losses. It will also help to predict the imposition or removal of foreign exchange control.

C. Balance of payment will also be important in signalling the imposition and removal of control over payment of various important factors like licence fee, royalty fees, interest and other cash disbursement to foreign companies and investors in order to boost their overall earnings.

So, it can be summarised that balance of payment will always be an indicator of performance of the country with regards to investors and managers.