Trusted by millions of Kenyans
LoginRegister
Study resources on Kenyaplex

Get ready-made curriculum aligned revision materials

Exam papers, notes, holiday assignments and topical questions – all aligned to the Kenyan curriculum.

Browse exam papers
Or go directly to:
Class notes Holiday assignments Topical questions Other resources

Explain Temporary Disequilibrium in Balance of Payment

Explain Temporary Disequilibrium in Balance of Payment

Answers

Wilfred
The balance of payment always balances. However, there could arise temporary disequilibrium of payment. Every credit must be matched by a debit and vice versa. If anything is sold abroad that is not offset by a purchase the excess is regarded as a temporary investment and is entered as a short term capital. An investment abroad appears as a debit item in the balance of payment. A purchase of goods not offset by a corresponding sale is a foreign claim on the domestic buyer and is entered in the ledger as a short-term credit. This identity of credit and debits is not index of equilibrium in the international trade; it?s only a book keeping balance. In real life situations exports and import as differ i.e. exports may be greater or lesser than imports. This is the short run effect international trade is regarded as temporary disequilibrium in the balance of payment.
Wilfykil answered the question on March 9, 2019 at 08:25

Answer Attachments

Next: What is meant by Favorable and Unfavorable Exchange Rates (BOP)?

Previous: Explain the roles of parliament in budgetary process

View more Money and Banking Questions and Answers  |  Return to Questions Index

Exams With Marking Schemes

Related Questions