International Trade 2
The balance of payment on current account may be;
For example;
A given country had the following values of visible and invisible export and import during the year 2004 and 2005
Trade 2004 (shs) 2005 (shs)
Visible export 18926 29954
Visible imports 22780 32641
Invisible exports 6568 19297
Invisible imports 5239 16129
Required
Prepare the country’s balance of payments on current account for the years 2004 and 2005 and comment on each of them.
Dr current account year 2004
Cr
shs
Visible imports 22780
Invisible imports 5239
Total 28019 Shs
Visible export 18926
Invisible export 6568
Total 25494
Deficit 2525
The country experienced unfavourable balance of payment on current account
in the year 2004, since they imported more than they exported
Dr current account year 2005
Cr
shs
Visible imports 32641
Invisible imports 16129
Total 28019
Excess 481 Shs
Visible export 29954
Invisible export 19297
Total 49251
The country experienced favourable balance of payment on current account in the year 2005, since they exported more than they imported
Balance of payments on capital account
This account shows the summary of the difference between the receipt and payments on the investment (capital).
Receipts are income from investments in foreign countries while payments are income on local investments by foreigners paid out of the country.
The capital inflow includes investments, loans and grants from foreign donors, while capital outflow includes dividends paid to the foreign investors, loan repayments, donations and grants to other countries.
In the account the payments are debited, while the receipts are credited.
That is;
Dr capital account Cr
Payments Receipts
The account may be;
In equilibrium i.e. if Dr = Cr
Unfavourable i.e. if Dr > Cr (-ve)
Favourable i.e. if Dr < Cr (+ve)
The combined difference on the receipts and payments on both the current and capital accounts is known as the overall balance of payments.
The official settlement account
This account records the financial dealings with other countries through the IMF.
It is also called the foreign exchange transaction account, and is always expected to balance which a times may not be the case.
That is;
Balance of payment disequilibrium
This occurs when there is either deficit or surplus in the balance of payments accounts.
If there is surplus, then the country would like to maintain it because it is favourable, while if deficit, the country would like to correct it.
Causes of balance of payment disequilibrium
It may be caused by the following;
Fall in volume of exports, as this will reduce the earnings from exports leading to a deficit.
Deteriorating in the countries terms of trade.
That is when the country’s exports decreases in relation to the volume of imports, then her
payments will higher than what it receives.
Increasing in the volume of import, especially if the export is not increasing at the same rate, then it will import more than it exports,
leading to a disequilibrium.
Restriction by trading partners. That is if the trading partners decides to restrict what they can import from the country to a volume lower than what the country import from them, it will lead to disequilibrium.
Less capital inflow as compared to the out flow, as this may lead to a deficit in the capital account, which may in turn leads to disequilibrium.
Over valuation of the domestic currency. This will make the country’s export to very expensive as compared to their import, making it to lose
market at the world market.
Devaluation of the currency by the trading partner.
This makes the value of their imports to be lower, enticing the country to import more from them than they can export to them.
Correcting the balance of payment disequilibrium
The measures that may be taken to correct this may include;
It can be done in the following ways;
i) Imposing or increasing the import duty on the imported goods to make them more expensive as compared to locally produced goods and lose demand locally.
ii) Imposing quotas/total ban on imports to reduce the amount of goods that can be imported in the country.
iii) Foreign exchange control. This allows the
government to restrict the amount of foreign currencies allocated for the imports, to reduce the import rate.
iv) Administrative bottlenecks. The government can put a very long and cumbersome procedures of importing goods into the country to discourage some people from importing goods and control the
amount of imports.
This can be done through;
i) Export compensation scheme, which allows the exporter to claim a certain percentage of the value of goods exported from the government.
This will make them to charge their export at a lower price, increasing their demand internationally.
ii) Diversifying foreign markets, to enable not to concentrate only on one market that may not favour them and also increase the size of the market for their exports.
iii) Offering customs drawbacks. This where the
government decides to refund in full or in part, the value of the custom duties that has been charged on raw materials imported into
the country to manufacture goods for export .
iv)Lobbying for the removal of the trade restriction, by negotiating with their trading partners to either reduce or remove the barrier
put on their exports.
Terms of sales in international trade
Here the cost trading which includes the cost of the product, cost of transporting, loading, shipping, insurance, warehousing and unloading may be expensive.
This makes some of the cost to be borne by the exporter, as some being borne by the importer.
The price of the goods quoted therefore at the
exporters premises should clearly explain the part of the cost that he/she is going to bear and the ones that the importer will bear before receiving his/her goods.
This is what is referred to as the terms of sale
Terms of sales therefore refers to the price quotation that state the expenses that are paid for by the exporter and those paid for by the importer.
Some of the common terms include;
(i) Loco price/ex-warehouse/ex-works.
This states that the price of the goods quoted are as they are at the manufacturers premises.
The rest of the expenses of moving the good up to the importers premises will be met by the importer
(ii) F.O.R (Free on Rail).
This states that the price quoted includes the expenses of transporting the goods from the seller’s premises to the nearest railway station.
Other railways charges are met by the importer.
(iii) D.D (Delivered Docks)/Free Docks.
This states that the price quoted covers the expenses for moving the goods from the
exporter’s premises to the dock.
The importer meets all the expenses including the dock charges.
(iv) F.A.S (Free Along Ship).
States that the price quoted includes the expenses from the exporter’s premises to the dock, including the loading expenses. Any other expenses are met by the importer.
(v) F.O.B (Free on Board).
States that the price quoted includes the cost of moving the goods up to the ship, including
loading expenses. The buyer meets the rest of the expenses .
(vi) C&F (cost & freight).
The price quoted includes the F.O.B as well as the shipping expenses. The importer meets the
insurance charges.
(vii) C.I.F (Cost Insurance & freight).
The price includes the C&F, including the insurance expenses.
(viii) Landed.
The price includes all the expenses up to the port of destination as well as unloading charges.
(ix) In Bond.
The price quoted includes the expenses incurred until the goods reaches the bonded warehouse.
(x) Franco (Free of Expenses).
The price quoted includes all the expenses
up to the importer’s premises. The importer does not incur any other expenses other than the quoted price.
(xi) O.N.O (Or Nearest Offer).
This implies that the exporter is willing
to accept the quoted price or any other nearest to the quoted one
International Trade 1 | International Trade 2 |
International Trade 3 | International Trade 4 |
Army Jobs - Navy Jobs - Military Jobs
Scholarship 2024/25
Current Scholarships 2024/2025 - Fully Funded
Full Undergraduate Scholarships 2024/2025
Fully Funded Masters Scholarships 2024/25
PhD Scholarships for International Students - Fully Funded!
Funding Opportunities for Journalists 2024/2025
Funding for Entrepreneurs 2024/2025
Scholarship 2024/25
Current Scholarships 2024/2025 - Fully Funded
Full Undergraduate Scholarships 2024 - 2025
Fully Funded Masters Scholarships 2024 - 25
PhD Scholarships for International Students - Fully Funded!
Funding Opportunities for Journalists 2024/2025
Funding for Entrepreneurs 2024/2025
***