Question

 

1. How would you define and explain the balance of payments, and how this concept affects the ability of a country to participate in Global Trade?
2. What is The International Monetary Fund, and how does it facilitate world trade?
3. How would you explain the process of Exchange Rates that are used to manage world trade by individual nations?

Answer 1

Balance of payments of a country e is a systematic record of all economic transactions completed between it's residents & and the residents of remaining world during a year.

According to economic thinker B.sodersten, the balance of payments is merely a way of listing payments & receipts in international transactions for a country.

Balance of payment includes visible and invisible items. In balance of payment include visible export and import as well as invisible trade like banking, insurance, royalty payment, tourism, shipping and payments of interest on foreign debates.

In balance of payments there are two types of account 1. Current ,2. Capital account. In current account all the debate and credit entries of invisible items are included. Capital account included the the entries of capital transaction in the country. Strong Current account indicates health of the economy.

The balance of payment concept provides a clear picture of economic relations between different countries.BOP is an integral aspect of international financial management.

International monetary fund is the intergovernmental organisation that is the global financial systems by following macroeconomic policies of its member countries in a particular those with an impact on exchange rate and the balance of payments.

International monetary fund established in 1944 under the brettonwood agreement. International monetary fund facilitate the expansion and balanced growth of international trade and promote international monetary cooperation through a permanent institution which provides the machinery for consumption and collaboration in international monetary problems as well as exchange stability.

Exchange rate is the rate at which a unit of one currency exchanges for the currency of another. If an American dollar $is exchange for 73 rupees then the exchange rate will be 1$=73 Indian rupees.

The exchange rate between countries due to changes in demand and supply in the foreign exchange market. The factors like changes in price, interest rate, export import, capital movements, influence of banks , bank rate, stock exchange, policies of exchange control and protection, political conditions as well as type of economy causes changes in demand and supply of currency.

There are two types of exchange rate, fixed change rate and flexible exchange rate.