1. CHAPTER - 2

2. BALANCE OF PAYMENT The Balance of Payment is the system of accounts that records a nation’s international financial transactions ( constant flow of money into and out of the country ) over a period of time ( usually one year ). It is a record of conditions, not a determinant of conditions. It represents the difference between receipts from foreign countries and payments to them.

3. Plus side Merchandise export sales Money spent by foreign tourists Payments for insurance & transportation Return on capital invested abroad New foreign investments Foreign government payments Minus side Cost of goods imported Spending by tourists overseas New overseas investment The cost of foreign military & economic aid

4. Balance of Payment Account Current account A record of all merchandise exports, imports and services unilateral transfer of funds. Capital account A record of direct investment, portfolio investment and short-term capital movements to and from countries. Official reserves account A record of exports and imports of gold and increases or decreases in foreign exchange.

5. Balance of Trade The relationship between merchandise imports and exports is referred to as the balance of merchandise trade or trade balance. Favorable balance of trade - Exports of goods > Imports of goods Unfavorable balance of trade - Imports of goods > Exports of goods

6. TRADE BARRIERS TARIFFS A tariff is a tax imposed by a government on goods entering at its borders. QUOTAS A quota is a specific unit or dollar limit applied to a particular type of good. STANDARDS Nontariff barriers of this category includes standards to protect health, safety and product quality.

7. VOLUNTARY EXPORT RESTRAINTS The VER is an agreement between the importing country and the exporting country for a restrictions on the volume of exports. BOYCOTTS A government boycott is an absolute prohibition on the purchase and importation of certain goods from other countries. ANTIDUMPING PENALTIES Antidumping laws were designed to prevent foreign producers from selling products for less than the cost of production in order to undermine the competition and take control of the market.

8. MONETARY BARRIERS 1.Blocked currency It cuts off all importing or all importing above a certain level. 2.Differential exchange rate It encourages the importation of goods the government deems desirable and discourages importation of goods the government does not want. 3.Government approval to secure foreign exchange It is used by countries experiencing severe shortages of foreign exchange.

9. World Trade Organization (WTO) 1. It sets many rules governing trade between its 132 members 2. WTO provides a panel of experts to hear and rule on trade disputes between members, and, unlike GATT, issues binding decisions Unlike GATT, is an institution, not an agreement

10. The International Monetary Fund (IMF) 1. IMF was created to assist nations in becoming and remaining economically viable 2. It assists countries that seek capital for economic development and restructuring 3. IMF loans come with stipulations that borrowing countries slash spending and impose controls to curb inflation 4. It helps maintain stability in the world financial markets Objectives of the IMF include: 1.stabilization of foreign exchange rates 2.establish convertible currencies to facilitate international trade 3.lend money to members in financial trouble Objectives of the IMF include: 1.stabilization of foreign exchange rates 2.establish convertible currencies to facilitate international trade 3.lend money to members in financial trouble

11. World Bank Group (WBG) The functions of the WBG include: The goal of WBG is to reduce poverty and the improvement of living standards by promoting sustainable growth and investment in people. 1. lending money to countries to finance development projects in education, health, and infrastructure; 2. providing assistance for projects to the poorest developing countries; 3. lending directly to the private sector in developing countries with long-term loans, equity investments, and other financial assistance; 4. provide investors with investment guarantees against “noncommercial risk,” so developing countries will attract FDI; and 5. provide conciliation and arbitration of disputes between governments and foreign investors