BOT

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Report about

Submited
to

Riaz Dahr

Group
Members
Taha
Yaseen
BM-25093
Anzar
Ishaqui BM-25167
Shoaib Hassan BM-25118
Asad Mazhar BM-25065
Aamir Ali Khan BM-25128

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“We owe our profound thanks and deepest gratitude to almighty Allah, most
beneficent, most merciful, who blessed us with determination, strength, ability
and divine help to complete this piece of study”.

Several people have made significant contributions to the supplementary materials

accompany the text
All of our fellow student who help us in giving ideas related to the formulation of
questionnaire and formatting of the report.Mr Riaz Dahar for guiding us through this
journey.we thanks all of them for their corporation, moral and material support.

Thanks,

Sincerely

SHOAIB HASAN
AAMIR ALI KHAN
ANZAR ISHAQUI
TAHA YASEEN
ASAD MAZHAR

INSTITUTE OF BUSINESS AND TECHNOLOGY

COURSE: GLOBAL ECONOMIC ISSUES

TITLE OF PROJECT REPORT: Balance of Trade

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MONTH OF SUBMISSION: November, 2010

NAME OF PROJECT SUPERVISOR: Riaz Dahr

ABSTRACT
Nowadays the world having challenges in possible to make trade between
the whole world, so we want to get edge through the better use of
technology and this use of technology is known as Globalization.
Technology is the key factor in this change and plays a very important role
in the advancements of functions performed in the industries and on the
basis of using better and advanced technology, every organization wants
to take competitive advantage over their competitors.

But along with the advancements in the functionality of the organizations,

there exist many problems like with performance appraisal systems,
training and development, recruitment and selection etc. As there exist
many advantages of using the advanced technology, there also exist
disadvantages of these functions. If we consider the performance appraisal
techniques, it has different requirements in public and private sectors. It
also creates different types of problems in the public and private sectors.

Due to the personal biasness, stereotype and different rules and

regulations of the organizations having diverse environment create
problems in the perform trade activities

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TABLE OF CONTENTS

Serial # Topic Page #

Acknowledgement i
Abstract ii

1. Introduction 1

2. Executive Summary
3. Literature Review
3.1 Balance of trade
3.2 History of BOT
3.3 Determinants of BOT

4 Research methodology
5. Conclusion
6. Recommendation
7. References

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The difference between a country's imports and its exports. Balance of trade is the largest
component of a country's balance of payments. Debit items include imports, foreign aid, domestic
spending abroad and domestic investments abroad. Credit items include exports, foreign
spending in the domestic economy and foreign investments in the domestic economy. A country
has a trade deficit if it imports more than it exports; the opposite scenario is a trade surplus

Balance of trade

The balance of trade (or net exports, sometimes symbolized as NX) is the difference
between the monetary value of exports and imports of output in an economy over a
certain period. It is the relationship between a nation's imports and exports A positive or
favorable balance of trade is known as a trade surplus if it consists of exporting more
than is imported; a negative or unfavorable balance is referred to as a trade deficit or,
informally, a trade gap. The balance of trade is sometimes divided into a goods and a
services balance.

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Import/Export Balances
 Balance of Trade
 Trade Deficits
 Trade Surpluses
 Balance of Payments

UNDERSTANDING TRADE BALANCE

 Trade balance is a reflection of a country’s international market and its domestic
consumption.
 A country’s balance of trade comprises a major segment of balance of payments.
 This is an effective mechanism to quantify a country’s overall economic
transactions with the rest of the world.
 It also affects the country’s overall GDP for that particular period.

Factors that effect trade balance are :

 Demand and Supply
 Domestic Business
 Trade agreement
 Tariff and Policies
 Exchange Rate
 New Technology

 The demand and supply trend defines the cost of domestic products to be sold in
the international market.

Domestic Business
 Sound, domestic policies are required to boost production and international trade.
Some countries like US provide subsidies to local manufacturers for exported goods and
services.

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 External pressures: Many countries export items that face heavy competition in
international market. This results in market segmentation and low pricing. Countries that
are mostly oil exporters or IT hubs tend to generate favorable trade balance due to less
competition in the international market. External pressures also work in the form of trade
bans. These bans are enforced by either individual countries or international
organizations such as the WTO or IMF.

The balance of trade encompasses the activity of exports and imports, like the work of
this cargo ship going through the Panama Canal.

The balance of trade forms part of the current account, which includes other transactions
such as income from the international investment position as well as international aid. If
the current account is in surplus, the country's net international asset position increases
correspondingly. Equally, a deficit decreases the net international asset position.

The trade balance is identical to the difference between a country's output and its
domestic demand (the difference between what goods a country produces and how many
goods it buys from abroad; this does not include money re-spent on foreign stock, nor
does it factor in the concept of importing goods to produce for the domestic market).

Measuring the balance of trade can be problematic because of problems with recording
and collecting data. As an illustration of this problem, when official data for all the
world's countries are added up, exports exceed imports by almost 1%; it appears the
world is running a positive balance of trade with itself. This cannot be true, because all
transactions involve an equal credit or debit in the account of each nation. The
discrepancy is widely believed to be explained by transactions intended to launder money
or evade taxes, smuggling and other visibility problems. However, especially for
developed countries, accuracy is likely.

Factors that can affect the balance of trade include:

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 The cost of production (land, labor, capital, taxes, incentives, etc.) in the
exporting economy vis-à-vis those in the importing economy;
 The cost and availability of raw materials, intermediate goods and other inputs;
 Exchange rate movements;
 Multilateral, bilateral and unilateral taxes or restrictions on trade;
 Non-tariff barriers such as environmental, health or safety standards;
 The availability of adequate foreign exchange with which to pay for imports; and
 Prices of goods manufactured at home (influenced by the responsiveness of
supply)

In addition, the trade balance is likely to differ across the business cycle. In export-led
growth (such as oil and early industrial goods), the balance of trade will improve during
an economic expansion. However, with domestic demand led growth (as in the United
States and Australia) the trade balance will worsen at the same stage in the business
cycle.

Since the mid 1980s, the United States has had a growing deficit in tradable goods,
especially with Asian nations (China and Japan) which now hold large sums of U.S debt
that has funded the consumption. The U.S. has a trade surplus with nations such as
Australia. The issue of trade deficits can be complex. Trade deficits generated in tradable
goods such as manufactured goods or software may impact domestic employment to
different degrees than trade deficits in raw materials.

In 2006, the primary economic concerns focused on: high national debt ($9 trillion), high
non-bank corporate debt ($9 trillion), high mortgage debt ($9 trillion), high financial
institution debt ($12 trillion), high unfunded Medicare liability ($30 trillion), high
unfunded Social Security liability ($12 trillion), high external debt (amount owed to
foreign lenders) and a serious deterioration in the United States net international
investment position (NIIP) (-24% of GDP), high trade deficits, and a rise in illegal
immigration

These issues have raised concerns among economists and unfunded liabilities were
mentioned as a serious problem facing the United States in the President's 2006 State of
the Union address. On June 26, 2009, Jeff Imelda, the CEO of General Electric, called for
the U.S. to increase its manufacturing base employment to 20% of the workforce,
commenting that the U.S. has outsourced too much in some areas and can no longer rely
on the financial sector and consumer spending to drive demand

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Conditions where trade imbalances may not be problematic

Small trade deficits are generally not considered to be harmful to either the importing or
exporting economy. However, when a national trade imbalance expands beyond prudence
(generally thought to be several percent of GDP, for several years), adjustments tend to
occur. While unsustainable imbalances may persist for long periods (cuff, Singapore and
New Zealand’s surpluses and deficits, respectively), the distortions likely to be caused by
large flows of wealth out of one economy and into another tend to become intolerable.

In simple terms, trade deficits are paid for out of foreign exchange reserves, and may
continue until such reserves are depleted. At such a point, the importer can no longer
continue to purchase more than is sold abroad. This is likely to have exchange rate
implications: a sharp loss of value in the deficit economy’s exchange rate with the surplus

economy’s currency will change the relative price of tradable goods, and facilitate a
return to balance or (more likely) an over-shooting into surplus the other direction.

More complexly, an economy may be unable to export enough goods to pay for its
imports, but is able to find funds elsewhere. Service exports, for example, are more than
sufficient to pay for Hong Kong’s domestic goods export shortfall. In poorer countries,
foreign aid may fill the gap while in rapidly developing economies a capital account
surplus often off-sets a current-account deficit. Finally, there are some economies where
transfers from nationals working abroad contribute significantly to paying for imports.
The Philippines, Bangladesh and Mexico are examples of transfer-rich economies.

Essentially claimed that the foreign assets were not carried on the books at their higher,
truer value.

Friedman presented his analysis of the balance of trade in Free to Choose, widely
considered his most significant popular work.

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Physical balance of trade

Monetary balance of trade is different from physical balance of trade. (which is expressed
in amount of raw materials, known also as Total Material Consumption). Developed
countries usually import a lot of primary raw materials from developing countries at low
prices. Often, these materials are then converted into finished products, and a significant
amount of value is added. Although for instance the EU (as well as many other developed

countries) has a balanced monetary balance of trade, its physical trade balance (especially
with developing countries) is negative, meaning that a lot less material is exported than
imported. For this reason, activists talk about the issue of ecological debt which implies a
sort of predatory economic system. The nature of the trade balance statistics is such that
is conceals distorted material flow.

United States trade deficit

Main article: United States Balance of trade

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The U.S. has held a trade deficit starting late in the 1960s. It was this very deficit that
forced the United States in 1971 off the gold standard. Its trade deficit has been
increasing at a large rate since 1997 and increased by 49.8 billion dollars between 2005
and 2006, setting a record high of 817.3 billion dollars, up from 767.5 billion dollars the
previous year.

The graph indicates that, as Frederic Bestial predicted, the deficit slackened during
recessions and grew during periods of expansion. Also of note, many economists
calculate trade deficits and/or current account deficits as a percentage of GDP. trade

Globalization Is Gaining Speed

The world economy is becoming a single, interdependent

system

Export:

Domestic product sold abroad

Import:

Foreign product sold domestically

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EXECUTIVE SUMMARY

A country's international trade consists of both importing and exporting goods

and services. The difference between the amount exported and the amount
imported equals the balance of trade. A trade surplus consists of exporting more
than importing while a trade deficit consists of importing more than exporting

DIRECT EXPORTING.

The typical exporting system is a company-owned export department, in which a

manufacturer sells directly to companies or consumers in foreign countries. In
this arrangement, the company has complete control over the marketing and
distribution of its goods and services, distribution, sales, pricing, and other
business choices. Most U.S. exporters, however, don't utilize this system. Many
companies depend on one or several specialized export channels outside their
organizations. Most companies choose direct and indirect routes. Direct exports
are sold through foreign-based parties. Indirect exports are sold through home-
based proxies or resellers. Both methods can be implemented through either
merchants or agents. In these cases, merchants actually assume ownership of the
goods, as opposed to agents, who only represent the manufacturer or owner.
Bartering is another method that manufacturers may use to sell their goods
abroad

INDIRECT EXPORTING.

When a company uses a home-based merchant or agent to find and deliver goods
to foreign buyers it utilizes indirect exporting. This method of exporting poses the

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least amount of risk and expense because it is relatively easy to start up and has a
moderate up-front capital investment. Indirect agents act as intermediaries
between the exporter and buyer and facilitate the flow of goods. The typical
exporting system is a company-owned export department, in which a
manufacturer sells directly to companies or consumers in foreign countries. In
this arrangement, the company has complete control over the marketing and
distribution of its goods and services, distribution, sales, pricing, and other
business choices. Most U.S. exporters, however, don't utilize this system. Many
companies depend on one or several specialized export channels outside their
organizations. Most companies choose direct and indirect routes. Direct exports
are sold through foreign-based parties. Indirect exports are sold through home-
based proxies or resellers. Both methods can be implemented through either
merchants or agents. In these cases, merchants actually assume ownership of the
goods, as opposed to agents, who only represent the manufacturer or owner.
Bartering is another method that manufacturers may use to sell their goods
abroad

IMPORTING

Importing products into countries is often dependent on what product,

commodity, or service is being imported. In the United States the Harmonized
Tariff Schedule is the directory for determining what if any tariff is imposed on
the product in question. Importing into any country should involve
communicating with that country's customs agency to determine the necessary
licensing and logistics issues. Often a customs broker is necessary to facilitate the
smooth transfer of goods and services between countries. Inherently, importing
involves exporting from one country; thus many of the issues involved in
exporting are relevant and necessary for importing goods and services.

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Literature Review

Balance of Trade

The balance of trade (or net exports, sometimes symbolized as NX) is the difference
between the monetary value of exports and imports of output in an economy over a
certain period. It is the relationship between a nation's imports and exports A positive or
favorable balance of trade is known as a trade surplus if it consists of exporting more
than is imported; a negative or unfavorable balance is referred to as a trade deficit or,
informally, a trade gap. The balance of trade is sometimes divided into a goods and a
services balance.

History of Balance of Trade

 2010 Jul 2010 - The Central Bureau of Statistics (BPS) reported earlier
the balance of trade in July 2010 had a deficit. Darmin predicted
the deficit could still happen in the months ahead this year. "Before
it was not negative but as imports grew higher that exports next
year we believe the trade surplus will be smaller," he said. Darmin
said capital inflow remained large so that the capital and financial
balance would remain positive

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DETERMINANTS OF THE BALANCE OF

TRADE

There are three major determinants of the trade balance or net exports: Foreign
exchange rates, national incomes, and domestic and foreign price levels.

EFFECTS OF THE FOREIGN EXCHANGE RATE.

The way the foreign exchange rate affects exports and imports has already been
discussed in fair detail. In a nutshell, if the U.S. dollar appreciates (the dollar
becomes stronger and the foreign exchange rate increases), exports decline and
imports increase, causing the foreign trade deficit to rise. If the dollar depreciates
(the dollar becomes weaker and the foreign exchange rate decreases), the foreign
trade deficit falls.

EFFECTS OF CHANGES IN DOMESTIC AND FOREIGN

INCOMES.

Changes in national incomes in foreign countries as well as in the United States

have an important effect on net exports. If national incomes in foreign countries
rise, foreign residents demand greater amounts of goods and services, some of
which can be bought from the United States. As a result, an increase in incomes
in foreign countries leads to an increase in U.S. exports, causing the foreign trade
deficit to rise (assuming other factors do not change). If national incomes in
foreign countries fall, U.S. exports to these countries will decline, leading to a
decline in the foreign trade deficit as well.

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If the U.S. national income rises, U.S. consumers demand more goods and
services, and some of this increased demand is for goods and services produced
in other countries. As a result, a rise in U.S. income increases U.S. imports,
causing the foreign trade deficit to rise. On the other hand, if the U.S. national
income declines, the demand for goods and services by U.S. consumers falls, so
does the demand for imported goods and services—this leads to a decrease in the
foreign trade deficit.

From the preceding discussion, it follows that changes in net exports are also tied
to rates of economic growth, both home and abroad. While U.S. policy makers
have some control over the rate of economic growth in the United States, they
cannot unilaterally influence rates of economic growth in foreign countries. As a
result, U.S. policy makers do not have complete control of the behavior of U.S.
net exports.

PRICES IN THE UNITED STATES AND IN FOREIGN

COUNTRIES.

Even if the foreign exchange rate and the domestic and foreign economic growth
rates remain unchanged, changes in price levels can affect U.S. net exports. Let us
first look at the effects of a change in the price level in the United States. Suppose
that the U.S. inflation rate is equal to 10 percent per annum. This means that
prices of goods and services in the United States are rising at the annual rate of
10 percent, on average. As a result, a Jeep Cherokee that costs $10,000 this year
will cost $11,000 next year. Also, let us assume that foreign prices do not change
and that one U.S. dollar is equal to 100 Japanese yen, and this exchange rate will

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not change next year. Now, look at the effect of the U.S. price increase on the
price of a Jeep Cherokee in terms of Japanese yen, the price most relevant to a
prospective Japanese buyer of a Jeep Cherokee. This year the Jeep Cherokee
costs 1,000,000 yen ($10,000 × 100) to a Japanese buyer, but it will cost
1,100,000 yen next year. Due to an increase in the price in yen, the export of Jeep
Cherokees to Japan would decline as the demand for the vehicle declines in
Japan (given that other factors do not change). Thus, in general, an increase in
U.S. price levels will hurt U.S. exports.

An increase in U.S. price levels will also affect U.S. imports of foreign goods and
services. In the above example, we assume that the U.S. price level rises and the
Japanese price level does not. Thus, a Japanese-made Toyota costs the same
amount in U.S. dollars this year as it will next year (since the foreign exchange
rate is also assumed to remain unchanged), but a Jeep Cherokee sold in the
United States will cost 10 percent more. This implies that the next year, a
Japanese-made Toyota will become cheaper relative to a Jeep Cherokee—thus, a
Toyota will become relatively more attractive to a prospective U.S. car buyer the
next year. In general, therefore, U.S. price increases also increase U.S. imports.
The price increases serve as a double-edged sword that reduces exports and

increase imports simultaneously, causing net exports to decline—that is, the

foreign trade deficit becomes worse or the magnitude of the foreign trade surplus
declines.

One can see that changes in foreign price levels will have analogous effects. If
foreign prices increase and the U.S. price level does not increase (given that other

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factors do not change also), U.S. exports will rise and imports will fall, causing
the U.S. foreign trade deficit to shrink or the foreign trade surplus to grow, as the
case may be.

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Methodology

Exporting is the act of producing goods or services in one country and selling or trading
them to another country. The term export originates from the Latin words ex and portare,
meaning to carry out. The counterpart to exporting is importing which is the acquisition
and sale of goods from acquired from another country and selling them within the
country. Although it is common to speak of a nation's exports or imports in the aggregate,
the company that produces the good or service, as opposed to a national government,
usually conducts exporting in terms of logistics and sales transactions. However, export
and import levels may be highly influenced by government policies, such as offering
subsidies that either restrict or encourage the sale of particular goods and services abroad.
Certain exports, such as military technology, may be banned entirely, at least for certain
recipients, in cases of trade embargoes or other government regulations (e.g., U.S.
companies generally can't export to or import from Cuba). Exporting is just one method
that companies use to establish their presence in economies outside their home country.
Importing is the method used to acquire products not readily available from within the
country or to acquire products at a less expensive cost than if it were produced in that
country.

Countries may be in a favorable position to export for several reasons. A country may
export goods if it is the world's sole supplier of a certain good, such as when it has access
to natural resources others lack. Some countries are also able to manufacture products at
a relatively lower cost than other countries, for example, when labor costs less. Other
factors include the ability to produce superior quality goods or the ability to produce the
goods in a season of the year when other countries need them.

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SUGGESTION

Currency depreciation can solve the trade deficit problem

The answer is plainly no. A depreciation of the US dollar will not remove the trade
deficits. In 1970s, one dollar exchanged for 360 Japanese Yen. Now, one dollar is worth
for only around 100 Yen. In other words, Yen has appreciated 72%. Still, Japan runs a
huge trade surplus with the US today.

Exchange rate is just one of the many factors that drive the trade balance between two
countries. Differences in interest rate, savings,  growth rate, level of financial
development (in terms of how easy to get access to consumer credit) all played a role.

Here I show a historical graph from St. Louis Fed, which looks at the relationship
between trade-weighted dollar index (with major trading partners) and the US trade
deficits. The green line is the dollar index (left axis), the higher the value, the more
valuable the dollar. The red line is US trade deficits (right axis) in billions of dollars.

As shown in the graph, from mid 1980s to early 1990s, the dollar index dropped (or
depreciation) against major currencies by  over 40%, dropping from 150 to 85, and the
trade deficits got eliminated.

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Trade-balance shock is on the way

Undervalued currencies, he argued, are the equivalent of import tariffs and export
subsidies, and should be no more acceptable than any other form of protection.
Expressing the sentiment of many in the US he concluded: “Nicely, nicely isn’t working.
Time to get tough.”

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Conclusion

In conclusion, we can say from start to end of this report we try to discuss all
aspects of BALANCE OF TRADE, means the factor which involve in the BOT like
trade surplus, trade defict and we can say also

When a company uses a home-based merchant or agent to find and deliver goods
to foreign buyers it utilizes indirect exporting. This method of exporting poses the
least amount of risk and expense because it is relatively easy to start up and has a
moderate up-front capital investment. Indirect agents act as intermediaries
between the exporter and buyer and facilitate the flow of goods.

Importing products into countries is often dependent on what product,

commodity, or service is being imported. In the United States the Harmonized
Tariff Schedule is the directory for determining what if any tariff is imposed on
the product in question. Importing into any country should involve
communicating with that country's customs agency to determine the necessary
licensing and logistics issues. Often a customs broker is necessary to facilitate the
smooth transfer of goods and services between countries. Inherently, importing
involves exporting from one country; thus many of the issues involved in
exporting are relevant and necessary for importing goods and services.

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REFERENCES
WHAT IS BOT
http://en.wikipedia.org/wiki/Balance_of_trade
http://www.investopedia.com/terms/b/bot.asp

INTRODUCTION
http://en.wikipedia.org/wiki/Balance_of_trade

HISTORY
http://www.google.com.pk/#q=HISTORY+OF+BALANCE+OF+TRADE&hl=en&sa=N
&biw=1020&bih=550&rlz=1R2ADFA_enPK399&tbs=tl:1&tbo=u&ei=MvzaTJL2N4W
OvQPVw-
CPCg&oi=timeline_result&ct=title&resnum=11&ved=0CGgQ5wIwCg&fp=21c59695f6
0729b7

http://www.jstor.org/pss/1928723