Foreign trade

Foreign trade

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  Foreign Trade Presentation byMahesh Kumar
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  Introduction and meaning •Foreign trade of a country refers to its exports and imports of merchandise from and to other countries under contract of sale • No Country in world produces all the commodities it requires. • Exchange of goods and services between two or more diff countries. • Such trade is also known as International trade
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  Features and Types •Import If the seller is aboard and the buyer is in home • Export If the seller is in home country and the purchaser Is aboard
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  Foreign trade canbe further classified into  Visible A Trade which can be seen i.e exchange of goods and merchandise is a visible part  Invisible Services are the intangible (invisible) output of the production process, including plumbing, transport and education.
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  Balance of Trade(BOT) • The difference between the value of goods and services exported out of a country and the value of goods and services imported into the country. • If a country has a balance of trade deficit, it imports more than it exports, and if it has a balance of trade surplus, it exports more than it imports. • The balance is said to be favorable when the value of the exports exceeded that of the imports (i.e.exports exceed imports), and unfavorable when the value of the imports exceeded that of the exports (i.e. imports exceed exports).
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  Factors that canaffect BOT • The cost of production (land, labour, 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)
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  Balance of Payment(BOP) Balance of Payment is a system of recording all the economic transactions of a country, with the rest of the world over a period, say one year.  Typically, the transanctions included in BoP are country's exports and imports of goods, services, financial capital, and financial transfers. Thus, in nut shell we can say, the BoP accounts summarize international transactions for a specific period, usually a year, and are prepared in a single currency, typically the domestic currency for the country concerned
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  BOP - Continued •Any transaction that causes money to flow into a country is a credit • Any transaction that causes money to flow out is a debit. • The BOP includes the current account, which mainly measures the flows of goods and services; • The capital account, which consists of capital transfers and the acquisition and disposal of non-produced, non-financial assets; and the financial account, which records investment flows. • The BOT is typically the biggest bulk of a country's balance of payments as it makes up total imports and exports. • favorable balance of payments, when more payments are coming in than going out. • unfavourable when less payments are coming in than what is going out.
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  Balance of PaymentDivided A. Current Account A. Net exports/imports goods &s ervices (Balance of Trade) B. Net Income (investment income from direct portfolio investment plus employee compensation C. Net transfers (sums sent home by migrant abroad) B. Capital Account • Capital transfers related to purchase and sale of fixed assets such as real estate C. Financial Account A. Net foreign direct investment : Amt of money individuals invest on companies and assets of another country B. Net portfolio investment : entry of funds into a country where foreigners make purchases in the country’s stock and bond markets . Basic Balance = A+B+C C. Other financial items D. Net Errors and Omissions • Missing data such as illegal transfers Overall Balance = A+B+C+D E. Reserves and Related Items • Changes in official monetary reserves including gold and foreign exchange reserves Σ (A:E) = Overall Balance
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  Trade Deficit andsurplus • If the debits exceed the credits, then a country is running a trade deficit. • If the credits exceed the debits, then a country is running a trade surplus.
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  BOT vs BOP Balanceof Trade • Balance of Trade is defined as 'difference between export and import of goods and services • BOT = Net Earning on Exports - Net payment made for imports • If export is more than import, at that time, BOT will be favourable. If import is more than export, at that time, BOT will be unfavourable. Balance of Payment • BOP is defined as the 'flow of cash between domestic country and all other foreign countries'. It also includes financial capital transfer. • BOP = BOT + (Net Earning on foreign investment i.e. payments made to foreign investors) + Cash Transfer + Capital Account +or - Balancing Item • Balance of payment will be unfavourable, if country has current account deficit and it took more loan from foreigners. After this, it has to pay high interest on extra loan and this will make BOP unfavourable.
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  BOT • Solution ofbeing Unfavourable: To Buy goods and services from domestic country. • Following are main factors which affect BOT a) cost of production b) availability of raw materials c) Exchange rate d) Prices of goods manufactured at home BOP • To stop taking of loan from foreign countries • Following are main factors which affect BOP a) Conditions of foreign lenders. b) Economic policy of Govt. c) all the factors of BOT
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  Thank You