2. What do you mean by Balance of Payments? Explain
the relationship between the balance of payments and the
exchange rates of a country, giving suitable illustrations
in support of your answer.
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Answer Posted / ritu modi
The balance of payments (BOP) measures the Receipts &
payments that flow between any individual country and all
other countries over a period, normally over a financial
year. It is used to summarize all international economic
transactions including trade, services, debts,Investments
for that country during the specified period. The BOP is
determined by the balance of the country's exports and
imports of goods, services, and financial capital, as well
as financial transfers. It reflects all payments and
liabilities to foreigners (debits) and all payments and
liabilities from foreigners (credits). Balance of payments
is one of the major indicators of a country's status in
international trade, with net capital outflow.
The balance, like other accounting statements, is prepared
in the domestic currency. Foreign assets and flows are
valued at the exchange rate prevailing at the time of the
transaction.
Thank you for your question.
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