Balance of trade, meaning, favourable,unfavourable.pptx

#Balance of Trade #meaning #feature

1. Balance of trade Lavanya Vijay

2. Balance of trade (BOT) is the difference between the value of a country's  exports  and the value of a country's imports for a given period. Balance of trade is the largest component of a country's  balance of payments  (BOP). The balance of trade is also referred to as the trade balance, the international trade balance, the commercial balance, or the net exports.

3. The formula for calculating the BOT can be simplified as the total value of exports minus the total value of its imports. Economists use the BOT to measure the relative strength of a country's economy. BOT = Exports − Imports ​ Exports represents the currency value of all goods sold to foreign countries, as well as other outflows due to remittances, foreign aid, donations or loan repayments. Imports represents the dollar value of all foreign goods imported from abroad, as well as incoming remittances, donations, and aid. Calculating the balance of trade

4. Trade surplus A favorable balance of trade, also known as a trade surplus, occurs when a country exports more goods than it imports. This means that the country is earning more from its exports than it is spending on its imports, and it is generally seen as a sign of economic strength. A trade surplus can be a result of a country having a competitive advantage in the production and export of certain goods, or it can be the result of a country's currency being relatively undervalued, making its exports cheaper for foreign buyers.

5. Trade deficit On the other hand, an unfavorable balance of trade, also known as a trade deficit, occurs when a country imports more goods than it exports. This means that the country is spending more on imports than it is earning from exports, and it can be a cause for concern if it persists over a long period of time. A trade deficit can be the result of a country having a comparative disadvantage in the production of certain goods, or it can be the result of a country's currency being relatively overvalued, making its imports cheaper and its exports more expensive.

6. Here's an example of how to calculate the balance of trade : Let's say that a country's exports of goods in a given year are worth $100 million, and its imports of goods are worth $80 million. To calculate the balance of trade, you would subtract the value of the imports from the value of the exports : Balance of trade = Exports - Imports = $100 million - $80 million = $20 million In this example, the balance of trade is $20 million, which means that the country has a trade surplus of +$20 million.

7. Several factors influence the Balance of Trade : Exchange Rates : Fluctuations in currency values impact the price competitiveness of exports and imports, affecting the BoT . Domestic and Global Demand : Changes in consumer preferences, both domestically and internationally, can impact export and import volumes . Domestic Production Cost : The cost of production within a country, influenced by factors like labour , technology, and resources, affects export prices and competitiveness . Trade Policies : Tariffs , quotas, subsidies, and other trade policies set by governments can influence the flow of imports and exports .

8. 5 . Economic Conditions : Economic growth or recession in trading partners can affect demand for a country's goods and services . 6 . Global Market Conditions : Shifts in global economic conditions, geopolitical events, or natural disasters can disrupt trade patterns and impact the BoT . 7 . Technological Advancements : Innovations can influence production efficiencies, thereby affecting export competitiveness . 8 . Relative Inflation Rates : Differentials in inflation rates between countries can impact price competitiveness in international trade.

9. Balance Of Trade vs Balance Of Payment BASIS FOR COMPARISON BALANCE OF TRADE BALANCE OF PAYMENT Meaning Balance of Trade is a statement that captures the country's export and import of goods with the remaining world Balance of Payment is a statement that keeps track of all economic transactions done by the country with the remaining world Records Transactions related to goods only. Transactions related to both goods and services are recorded Capital Transfers Are not included in the Balance of Trade Are included in Balance of Payment Which is better? It gives a partial view of the country's economic status It gives a clear view of the economic position of the country Result It can be Favorable, Unfavorable or balanced Both the receipts and payment sides tallies Component It is a component of Current Account of Balance of Payment Current Account and Capital Account

10. References Francis C herunilam (2007) , INTERNATIONAL BUSINESS: text and cases (Fourth Edition) , Prentice Hall of India private limited. Justin Paul (2022) INTERNATIONAL BUSINESS, PHI Publications Delhi Sanjay Misra and Yadhav ,PK , (2009), INTERNATIONAL BUSINESS: text and cases , PHI Learning Pvt Ltd. New Delhi Other references https:// youtu.be/ncEbLQgAUvs?si=aRgiBNF5aLWj7ZvN https:// en.wikipedia.org/wiki/Balance_of_trade https:// www.investopedia.com/terms/b/bot.asp