What are the merits and demerits of the balance of payment?
What are the merits and demerits of the balance of payment?
Merits and Demerits of System of Exchange
| MERITS | DEMERITS |
|---|---|
| Attracts foreign capital | Neglects the concept of free market |
| Makes sure inflation is in check | Often results in over evaluation or undervaluation of currency. |
| Stabilises exchange rate | No automatic adjustment in BOP |
What are the demerits of balance of payment?
Disadvantages Of Balance Of Payment
- Cash or kind backed by international cooperation between governments of different economies.
- Cash transfers between governments for financing current expenditures.
- Current tax on income and wealth and other transfers such as social security.
What are the advantages of balance of payment?
1. It is of great value in forecasting and evaluating its business and economic conditions: The more accurate the material in the balance of payments, the more valuable it becomes as a basis for the study of the economic and business conditions of a country.
What are theories of balance of payment?
The balance of payments theory of exchange rate holds that the price of foreign money in terms of domestic money is determined by the free forces of demand and supply in the foreign exchange market. It follows that the external value of a country’s currency will depend upon the demand for and supply of the currency.
What are the advantages and disadvantages of trade?
Advantages and Disadvantages of International Trade
- Specialization of Resource Allocation.
- Manufacturing Growth.
- Economic Dependence of Underdeveloped Countries.
- Competitive Pricing Leads to Stabilization.
- Distribution and Telecommunications Innovation.
- Extending Product Life Cycles.
How many theories of balance of payment are there?
There are three key BOP components, including the current account, capital account, and financial account. The current account must balance the capital and financial accounts.
Who developed BOP theory?
1820–1914: Classical economics It is the foundation of what is known in modern economic studies as the quantity theory of money, the neutrality of money and the consideration of interest rates not as a monetary phenomenon, but a real one. Adam Smith built on this foundation.
What are five advantages and five disadvantages of international trade?
What are the demerit of international trade?
Here are a few of the disadvantages of international trade:
- Disadvantages of International Shipping Customs and Duties. International shipping companies make it easy to ship packages almost anywhere in the world.
- Language Barriers.
- Cultural Differences.
- Servicing Customers.
- Returning Products.
- Intellectual Property Theft.
What are the features of balance of payment?
Features of Balance of Payments
- Systematic Record. It is a systematic record of receipts and payments of a country with other countries.
- Fixed Period of Time.
- Comprehensiveness.
- Double entry System.
- Adjustment of Differences.
- All Items-Government and Non-Government.
What are the two main components of balance of payment?
The balance of payments includes both the current account and capital account. The current account includes a nation’s net trade in goods and services, its net earnings on cross-border investments, and its net transfer payments.
