Current account, Managerial Economics

The Current Account

This records all transactions involving the exchange of currently produced goods and services and is subdivided into

i.          Visibles:

A record of all receipts from abroad the export of goods and all expenditures abroad on the import of goods.  When these are compared, this is known as the "balance of  trade" (though it would be properly called the "balance of visible trade").

ii.          Invisibles:

A record of all receipts from abroad in return for services rendered and all expenditure abroad for foreign services.  It also includes receipts of profits and interest earned by investments abroad, and similarly profits and interest paid abroad to foreign owners of capital in the country are included in Expenditure.  The comparison of all the debits (Expenditure abroad) and credits (receipts from abroad) arising from visibles and invisibles is known as the "balance of payments on current account" and is the best indicator of the country's trading position.

If the value of exports exceeds the value of imports the balance of payments is said to be in Trade Surplus.   This is regarded as a favourable position because a persistent trade surplus means the country's foreign exchange reserves are rising and so its ability to pay for its imports and settle its international debts.  Also a trade surplus is regarded as a sign of success in the country's trade with other countries and is, therefore, politically desirable.

On the other hand, if the value of imports exceeds the value of exports, the balance of payments is in trade deficit.  This is an unfavourable position because a persistent balance of payments trade deficit means that the country's foreign exchange reserves are being run down and so is its ability to pay for its imports and settle its international debts. Also a persistent balance of payments trade deficit is regarded as a sign of failure in the country's trade with other countries and is therefore politically undesirable.

Posted Date: 11/30/2012 5:17:57 AM | Location : United States







Related Discussions:- Current account, Assignment Help, Ask Question on Current account, Get Answer, Expert's Help, Current account Discussions

Write discussion on Current account
Your posts are moderated
Related Questions
structure of managerial economics

Real Rigidities in the Credit Market How imperfections in the goods markets enable firms  to  set  prices  so  as to  generate  price  rigidities,  e.g.,  because of countercy

The neo-classical view The neo-classical view is that market forces are the best directors of the economy.  Positive attempts by the government it is argued inevitably make th

how realistic is the sales maximization model from experience with business objectives as pursued by Zimbabwean firms

In a one-shot game, if you advertise and your rival advertises, you will each earn RM5 million in profits.  If neither of you advertises, your rival will make RM4 million and you w

Q. Show the importance of Demand forecast? Demand forecast for a particular commodity furthermore offers recommendations for demand forecast of associated industries. For exam

The comparability principle Associations representing workers providing services - clerical, postal, teaching, etc. - have always attempted to  apply the "principle of comparab

Dan and Ann are chemical engineers working for a biotech company. Each of them would like to be promoted to a managerial position, but only one of them can get the job. Their super

According to J.B. Clark's profits arises in a dynamic economy, not in a static one. A static economy is one in which there is absolute freedom of competition population and capital

Prices of other goods must remain constant Changes in the prices of other goods frequently impinge on the demand for a particular commodity. If prices of commodities for which