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Terminology: Balance of Payment Video Lecture | Indian Economy for UPSC CSE
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FAQs on Terminology: Balance of Payment Video Lecture - Indian Economy for UPSC CSE
| 1. What is the balance of payments? |  |
The balance of payments is a record of all economic transactions between a country and the rest of the world over a specific period. It includes transactions related to imports, exports, services, and financial flows, such as investments and loans.
| 2. How is the balance of payments calculated? | |
The balance of payments is calculated by summing up the current account, capital account, and financial account. The current account includes trade flows, such as exports and imports of goods and services, as well as income from investments abroad. The capital account records capital transfers, such as debt forgiveness and migrants' transfers, while the financial account captures changes in ownership of financial assets.
| 3. Why is the balance of payments important? | |
The balance of payments is important as it provides insights into a country's economic health and its relationship with the rest of the world. It helps policymakers monitor trends in trade, understand the flow of capital, identify imbalances, and make informed decisions regarding economic policies and interventions.
| 4. What does a surplus or deficit in the balance of payments indicate? | |
A surplus in the balance of payments indicates that a country is exporting more goods and services than it is importing, resulting in a net inflow of foreign currency. This surplus can be seen as a sign of economic strength. On the other hand, a deficit in the balance of payments suggests that a country is importing more than it is exporting, resulting in a net outflow of foreign currency. A deficit can indicate economic weaknesses or imbalances that may require corrective actions.
| 5. How does the balance of payments affect a country's currency exchange rate? | |
The balance of payments can influence a country's currency exchange rate. A surplus in the balance of payments, indicating a strong economy, can lead to an increase in the value of the country's currency. This increase makes imports more affordable and exports relatively more expensive, helping to reduce the trade surplus. Conversely, a deficit in the balance of payments can put downward pressure on the country's currency, making imports more expensive and exports more competitive, potentially improving the trade balance.
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Dec 21, 2024 Last updated |
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