Vidyamandir Classes: Innovating For Your Success

Chapter-7_Balance of Payment

 Other things remaining unchanged when in a country the price of foreign currency rises, national income
is likely to rise.
 The exchange rate of which demand for foreign currency becomes equal to its supply is called
equilibrium rate.
 Inverse relationship between supply of foreign exchange and exchange rate.
 Borrowing from IMF is a part of capital account.
 EI is the short from of export impart.
 The market converting the currency of a country into the currency of other country is known as foreign
exchange market.
 Devaluation of any currency happens under fixed exchange rate system export of capital gods is an
autonomous item.
 Investment abroad in case of surplus bop is an example of autonomous transaction.
 Fall in the oil price in the world market will appreciate Indian currency.
 Make in Indian will be increase the balance of credit side of Bop.
 Trade of visible items between the countries is known as balance of trade.
 When there is unfavorable balance. Of trade X < M.

(a) Impart of goods and services from abroad.

(b) Investment in foreign nations

(c) Gift scheme to foreign nations. All of these is a sources of the demand for foreign exchange.

 Visible items, Invisible items, capital transfers. All of these included in the balance of payment.
 Banking shipping communication all of these is the invisible items of balance of payment.
 Donation of $50 million received from Microsoft is the items raises the supply of foreign exchange.
 Export of machinery is recorded on the credit side of current account.
 Surplus in balance of payment arises when autonomous receipts > Autonomous payments.
 Decrease in foreign exchange reserves will be recorded on the credit side of Bop.
 Bop is always balanced when accommodating items are reflected as a part of capital account.
 Value of $ 1 falls from ₹68 to ₹64 due to increases in supply of dollar implies appreciation of Indian
currency.
 Increase in supply of foreign exchange appreciates domestic currency.

VMC 1 Government budget and the Economy

 Vidyamandir Classes: Innovating For Your Success

 Measures to improve the adverse balance of payment includes currency devaluation, import substitution,
exchange control.
 A source of supply of foreign exchange.
 Gifts, remittances, and grants is not recorded in the capital account of Bop.
 Autonomous transactions takes place on capital account, current account.
 If Japanese import mare goods from India.

India’s Bop will improve

Japan’s Bop will deteriorate.

 Nominal account is not a component of balance of payment.

 Export and import of goods is also known as visible trade.
 Balance of trade refers to the difference between exports and imports of visible items.

VMC 2 Government budget and the Economy