Macroeconomics

            
            
            
            
            
            
            
             • Foreign Trade and the Balance of Payments.
            
            
            
            
            
            
             • FOREIGN TRADE & BALANCE OF PAYMENTS.
            
             Foreign trade is the exchange of goods and services between different countries.
             BALANCE OF PAYMENTS.
             Balance of Payment is the record of a nation's international transactions.
             FOREIGN TRADE.
             PAKISTAN EXPORT TRANSACTION.
             Assume that the exchange rate is Rs. 10 for $ 1.
             Suppose a Pakistani based firm sells cotton worth Rs. 50,000 $5000 to an American company. .
             Pakistani exports create a foreign demand for rupees .
             Satisfaction of this demand generates a supply of rupees.
             Financing of this Pakistani export (American import):.
             Reduces the supply of money (demand deposits) in America.
             Increases the supply of money in Pakistan by the amount of purchase.
             PAKISTAN IMPORT TRANSACTION.
             Suppose a Pakistani based firm buys 2 computers from an American company. .
             One computer costs $5000 (Rs. 50000), hence two would cost $ 10000 (Rs. 100000). .
             Pakistani imports create a domestic demand for foreign currency, dollars.
             Increases the supply of money (demand deposits) in America.
             Decreases the supply of money in Pakistan.
             BALANCE OF PAYMENTS.
             Balance of payments is the record of a nation's international transactions, it includes both credits and debits. It can be referred to as the Balance Sheet of the country. .
             The balance of payments is divided into two main parts:.
             Current account.
             Capital account.
             CURRENT ACCOUNT.
             It is the part of the Balance of Payment, which records all types of flows that matter for the current income and output, for a fiscal year. .
             The main components of the current account are:.
             1) Exports of goods.
             2) Imports of goods.
             3) Trade Balance.
             4) Exports of Services .
             5) Imports of Services.
             6) Balance on goods and Services.
             7) Net Investment Income .
             8) Transfer Payments.
             9) Balance on current account.
             MAIN COMPONENTS OF CURRENT ACCOUNT.
             EXPORTS OF GOODS.
             Create a supply of foreign currency (in flows credits).
             IMPORTS OF GOODS.