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The balance of payment is the balance sheet showing the status of a nation?s international trade. It is a statement of debits and credits in the international trade. Credit shows the value receivable on account of exports. Debts shows value payable on imports. When a nation debit exceeds its credit its rate of exchange becomes adverse meaning the local price of local currency rises above par and exchanges at a premium. The local demand for foreign currency exceeds its supply. Exchange is then adverse to the debtor country which has to pay money local currency for a given amount of foreign currency or a given amount of local currency buys less of foreign currency. Thus exchange is unfavorable to the importers who have to pay more in local currency and its favorable to the exporters who receives more in local currency for exports.
When a country?s international credit exceeds its debts, the rate of exchange fails below par in terms of local currency and exchange is said to be at a discount since the supply of foreign currency is in excess of the demand for it. An exchange in this case, is said to be favorable to the creditors country because of less local currency need to be paid for a given quantity of foreign currency or more of foreign currency can be exchanged for a given amount of local currency. Exchange in this case is unfavorable to the exporters who receives for exports less in value in terms of own currency.
Wilfykil answered the question on March 9, 2019 at 08:22
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