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1. Balance of trade refers only to the feasible import and exports which are recorded in the customs return. Accordingly, an excess of recorded exports over recorded import constitutes a favorable balance of trade. An excess of recorded import over exports
constitutes unfavorable balance of trade. Recorded exports/imports refer only to the material goods.
2. Balance of payment
However any estimate of international indebtedness must include infeasible items also on the both credit and debit side. Such infeasible includes services rendered by banking/insurance firms, interest on and on repayment of foreign capital and technical know-how which are not recorded in the customs returns. A statement of feasible and infeasible items will yield balance of payment
A country can have a permanently favorable balance of payment only if it lends its annual surpluses to its trade patterns or pays a perpetual tribute for indemnity to other countries.
International trade is a developed form where exports are the price of import and imports are the price of exports. Exports are the price a country has to pay for its imports. A county can import only as much as it can buy with its exports. In the long run, a country?s export and import tend to balance just as an individual purchases are limited by its income which depend on the value of goods / services it sells to others.
Similarly a country?s purchases are limited by the value of goods and services it sells to other countries or else it will become bankrupt in international trade sales. Thus in the long run, a country balance of payment must be in equilibrium. Anything which reduces exports must automatically also reduce imports. If a nation does not pay then it is not expected to sale.
In summary, the balance of payment always balances in the long run. The balance of payment of a country is record of all economic transaction between residents of the reporting country and the residents of foreign countries. The major determinant of balance of payment is foreign exchange that a country earns in the international transaction. Foreign exchange arises due to the problem of international payment. Foreign exchange involves the conversion of one currency into other currencies. Foreign exchange relates to the mutual conversation of different national currencies at particular rates.
sharon kalunda answered the question on March 4, 2019 at 12:51
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