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Why would it be useful to examine a country's balance of payment data?
Wiki User
∙ 10y ago
why would it be useful to examine a country balance of payment data
Wiki User
∙ 10y ago
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Write all the Differences between balance of trade and balance of payment in tabular form?
In order to examine a country's position in international trade, it is useful to consult two of the most frequently used statistics, the balance of trade and the balance of payments. When you hear on the news about the U.S. "trade balance," what you are usually hearing about is the merchandise trade balance, which is the difference between a nation's exports and imports of merchandise. A "favorable" merchandise balance of trade, or trade surplus, occurs when a country's exports exceed its imports. A "negative" balance of trade, or trade deficit, occurs when a country's imports exceed its exports. From the mid-1970s, throughout the 1980s and into the 1990s, the United States has run persistent trade deficits. Economists disagree as to the effects this has had on the economy, but it is certain that these deficits allowed foreigners to accumulate U.S. dollars earned in payment for products that Americans imported The balance of trade, however, is not the whole picture; it includes only purchases and sales of merchandise. The complete summary of all economic transactions between a country and the rest of the world--involving transfers of merchandise, services, financial assets and tourism--is called the balance of payments. Simply, any transaction that results in money flowing into the country is a balance of payments credit, and anything that draws money out of the country is a balance of payments debit. Balance of payments deficits, where the amount of money leaving the country is greater than the amount flowing in, need to be financed; extra money has to come from somewhere. Usually, payments deficits are financed by borrowing money from overseas. The balance of payments for a country is separated into two main accounts: the current account and the capital account. The current account records sales and purchases of goods, services and interest payments. The entire merchandise trade balance is contained in the current account. The capital account deals with investment items, like whole companies, stocks, bonds, bank accounts, real estate and factories. Thus, if you bought a parachute from a factory in Germany, your purchase would be recorded in the current account. But if you bought the entire parachute factory, your purchase would be in the capital account. The balance of payments is influenced by many factors, including the financial and economic climate of other countries. For example, if other countries want the services of U.S. doctors, bankers, lawyers, accountants, engineers, entertainers and other service-providers, that demand will play a significant role in the U.S. balance of payments. Large amounts of money flow between nations in payment for such services, even if no merchandise is exchanged. In 1991, service exports accounted for over one-quarter of total U.S. export
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