This document discusses international trade and balance of payments. It defines key terms like imports, exports, entrepots, and balances of trade. It also defines the components of the balance of payments, including the current account (trade account and invisible account), capital account, and official reserves account. It provides examples of a country's balance of trade and balance of payments, showing how the capital account can offset a current account deficit to achieve an overall balance.

2. TRADE refers to
exchange of goods
and services
between individuals
or nations

4. HOME TRADE

6. IMPORT: purchase goods and services by
domestic country from foreign countries
EXPORT: sale goods and services by domestic
country to foreign countries.
ENTREPOT: goods or merchandise bought from
one country with a view to sell it for other
countries

12. SURPLUS OR FAVORABLE BALANCE OF TRADE
Visible exports > Visible imports
BALANCED TRADE
Visible exports=Visible imports
DEFECIT OR UNFAVORABLE BALANCE OF TRADE
Visible exports < Visible imports

13. BALANCE OF PAYMENTS
It also includes import and export of invisible services.
Balance of payments is the difference between the value of visible
and invisible items of imports and exports.
SURPLUS when Exports > Imports
BALANCED when Exports=Imports
DEFECIT when Exports<Imports

14. STRUCTURE OF BALANCE OF
PAYMENTS
Current account Capital account Official Reserves account
Trade account
Invisible account
Transfer payments
ERRORS AND OMISIONS: It is of a balancing entry and is needed to offset the
overstated and understated components
Foreign investment
Foreign investment
Banking capital
Monetar movements
Direct
Portfolio

15. CURRENT ACCOUNT:
TRADE ACCOUNT: Transactions related to goods are recorded . It includes the value
of visible goods imported and exported.
INVISIBLE ACCOUNT: Transactions related to services are recorded . They include
items like banking , insurance , shipping , interest on investments etc.
TRANSFER PAYMENTS: unilateral payments made to and received from foreign
countries.EG. Financial aid for welfare programmes , social security and subsidies fo
certain business firms

16. 2.CAPITAL ACCOUNT
Deals with the
payments of debts
and claims
Includes capital transactions such
as borrowing and lending of loans ,
repayment of loans ,sale and
purchase of assets from foreign
countries
Capital movements may take
place either on government level
or private account

17. If a country receives excess of foreign exchange than the foreign
exchange expenditure it results in surplus.
This surplus is shown in the reserves account
It indicates the change in a country’s reserve assets during a
year . In the form of gold, foreign currencies , SDR’s
3.OFFICIAL RESERVE ACCOUNT

18. Balance of payments
Current account Capital account
Balance of
trade

20. Balance of Trade = Rows (1) and (5)
= 550-800 = -250
Balance of Services = Rows (2) and (6)
= 150-50= 100
Balance of Unilateral Transfers = Rows (3) and (7)
= 100-80 = 20
Balance of Payment on Current A/c = -250 + 100 + 20 = -130
Balance of payment on Capital A/c = Rows (4) and (8)
= 200-70= 130 Balance of Payment = Rows (1 to 4) – (5 to 8)
= (550 + 150 + 100 + 200) – (800 + 50 + 80 + 70)
= 1000- 1000 = Zero
A deficit in balance of payment on current account (i.e., -130 millions ) has been offset by
surplus in BOP on capital account (i.e., + 130 ). As a result, balance of payment is in equilibrium.

22. BALANCE OF TRADE BALANCE OF PAYMENTS
Includes only the visible
merchandise items of exports anf
imports.
It gives a partial picture of the
economic relations of a country
with the other.
It may be favourable ,
unfavourable or equilibrium
It includes visible and invisible
items of import and export.
It is comprehensive and
complete picture of the economic
relations of a country with other.
It always remains balanced .