Question

(4)(a)What international transactions make up the current account and basic account of a country’s BOP? (b)What measures can a country take to deal with its balance of trade deficit? (c) Briefly discuss how devaluation is supposed to work to reduce a country’s trade deficit? What are the limitations of this strategy?

Answer 1

Answer(a):

international transactions make up the current account and basic account of a country’s BOP

Balance of Payment-

• It is the announcement of transactions of products from one country to different country.
• BOP tells all the transactions that a country have with different country.
• Current record shows the parity of fare and import of merchandise and ventures.
• Current record figures the country's exchange balance in addition to overall gain and the immediate installments.

Answer (b)

country take to deal with its balance of trade deficit:

Trade deficit-

• It happens when a country imports a greater number of merchandise than sends out.

Measures to manage trade deficit : Are as following:

• By diminishing estimation of swapping scale, exchange shortfall can be decreased.
• On the off chance that organization devaluates its cash, at that point imports will be costlier and clients will expend less so request less, thusly, exchange shortage can be decreased.
• country ought to diminish the utilization and interest for merchandise from abroad.
• Government ought to have tight monetary arrangements to do that with the goal that exchange shortage can be diminished.
• companies and Government should attempt to make the items in the nation of origin itself so that there will be no requirement for bringing in similar merchandise.

Answer(c):

devaluation is supposed to work to reduce a country’s trade deficit

• By devaluating estimation of conversion standard, exchange shortage can be decreased.
• In the event that organization devaluates its money, at that point imports will be costlier and clients will expend less so request less, along these lines, imports will be less and exchange shortage can be diminished.

Limitations of this strategy-

• Devaluation brings forth expansion, when nation's money loses its buying influence, costs of wares increment and swelling increments in the nation.
• It additionally builds the outside obligation.