What Causes Unfavorable Balance Of Payment?


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zahra malik answered
Balance of payments as defined by prof kindleberger, ''it is a systematic record of all economic transactions of a country with the rest of the world in a given period of time.''The economic transactions mentioned in the definition includes all the visible and invisible goods imported and exported by a country.Foreign exchange is involved in the transaction of the goods e.g. Where a country exports its product to the rest of the world, it receives foreign exchange and otherwise when it imports goods and services, it makes payments in terms  of foreign exchange. For this matter a country must maintain a record for all the import payments and export receipts and such a record is known as balance of payments.Disequilibrium in the Balance of payments: This means that total receipts and total payments on the current account of the balance of payments are not equal to each other. When the total payments exceed the total receipts and the balance of payments on the current account is entered with a negative side then it is said that there is unfavorable Balance of Payments.

causes of deficit in the balance of payments:

1) Relatively high rate of inflation.2) Trade restrictions by other countries.3) Deterioration of terms of trade.4) Demand for machinery, oil and industrial goods by LDCs is inelastic.5) Depression in the international market.6) Foreign loans.7) Relative slow increase in the factors of production.8) Introduction of a substitute.9) Change in the production technology.10) changes in capital Movement, fashion and tastes.

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