Gujarat BoardEnglish MediumSTD 12 CommerceEconomicsFOREIGN TRADE2 Marks
Question
Explain with example the Exchange Rate.
✓
Answer
$1.$ Meaning of Balance of Payments:
Balance of payment is a true criteria to know any country's clear, real and complete economic condition.
It includes all types of international payment.
Balance of payment means comparison of one country's balance sheet of trade with other countries.
Value of products and services, expense of transportation of means and value of trade capital are registered in it.
Definition:
An accounting statement showing the value of imports and exports of tangible $($visible$)$ and intangible $($invisible$)$ goods during a year is balance of payments.
In other words, balance of payments is a systematic account of the value of transactions in particular period $($one year$)$ of a country with the rest of the world in tangible and intangible goods and services import and export and transfer payments and capital.
It is known as international balance sheet.
The concept of balance of payments is more extensive than trade balance.
Trade balance includes import-export of only tangible goods while balance of payments includes invisible goods and all economic expenses related to services and transportation.
Balance of payment has two sides:
$(1)$ Credit Side:
Income earned in the country from foreign countries is shown.
$(2)$ Debit Side:
All payment made in foreign countries is shown.
$2.$ Types of Balance of Payments:
$TWO$ types of balance of payments is possible : $(1)$ Balanced $(2)$ Unbalanced.
$(1)$ Balanced:
The sum total of credit and debit entries is equal in balance of payments.
$(2)$ Unbalanced:
Balance of Payments is unbalanced when the value of entries on the credit side is not equal to entries on the debit side.
There is difference in the total of credit side and debit side.
When two situations are possible.
$(1)$ Surplus Balance of Payments:
If the total of credit side is more than the total of debit side, it is called surplus balance of payments.
$(b)$ Deficit Balance of Payments:
In the balance of payments, if the total of debit side is more than the total of credit side it is called deficit balance of payments.
Any country's deficit or surplus or balance is discussed in the context of its balance of payments.
From the view point of accounting, balance of payments is always balanced because deficit or surplus of current account is always maintained through its capital and reserve account.
Need a full question paper?
Generate a complete, print-ready paper with questions like this in minutes — across 16+ boards, with answer keys.