We have noted above that the balance of payments is always in balances from accounting point of view. Besides, in the accounting procedure, a deficit in the current account is offset by a surplus in capital account resulting from either borrowing from abroad or running down the gold and foreign exchange reserves. Similarly, a surplus in the current account is offset by a corresponding deficit in capital account resulting from loans and bills to debtor country or by decline of its gold and foreign exchange reserves. However, disequilibrium in the balance of payments does arise because total receipts during the reference period need not be necessarily equal to the total payments. When total receipts do not match with total payment of the accounting period, this is a position of disequilibrium in the balance of payments. The final balance of payments position is obtained in the manner described below. For assessing Continue reading
International Economics
The Current Account Component in Balance of Payments (BoP)
The Current Account Component The Current Account records a nation’s total exports of goods, services and transfers, and its total imports of them. The current account is subdivided into two components (1) balance of trade (BoT), and (2) balance of invisibles (BOIs). Structure of Current Account in India’s BOP Statement A. CURRENT ACCOUNT I. Merchandise (BOT): Trade Balance (A-B) A. Exports, f.o.b. B. Imports, c.i.f. II. Invisibles (BOI): (a + b + c) a. Services i. Travel ii. Transportation iii. Insurance iv. Govt. not elsewhere classified v. Miscellaneous b. Transfers i. Official ii. Private c. Income i. Investment Income ii. Compensation to employees Total Current Account = I + II 1. Balance of Trade (BoT) Balance of payments refers the difference between merchandise exports and merchandise imports of a country. BOT is also known as “general merchandise”, which covers transactions of movable goods with changes of ownership between residents and Continue reading
The SCP Paradigm – Structure drives Conduct which drives Performance
The SCP paradigm assumes that the market structure determines the conduct of the organization. This conduct, in turn, is the determinant of market performance. Examples of market performance include efficiency, profitability and growth. The Structure Conduct Performance Framework seeks to establish that certain structures of the industry can lead to certain kinds of conduct or behavior which then leads to various types of economic performance. The SCP paradigm was developed through evaluation of empirical studies involving American industries. Theoretical models were not used to support the paradigm. The conclusion that was drawn from empirical studies was that market structure determined performance. This is caused by the belief that the laws of competition should not be based on behavioral models but rather on structural remedies. According to J.S. Bain who developed the paradigm in the 1950s, most industries became concentrated than necessary. In concentrated industries, there are high barriers to entry. Continue reading
The Capital Account component in Balance of Payments (BoP)
Capital account records public and private investment, and lending activities. It is the net change in foreign ownership of domestic assets. If foreign ownership of domestic assets has increased more quickly than domestic ownership of foreign assets in a given year, then the domestic country has a capital account surplus. On the other hand, if domestic ownership of foreign assets has increased more quickly than foreign ownership of domestic assets in a given year, then the domestic country has a capital account deficit. It is known as “financial account”. IMF manual lists out a large number of items under the capital account. But India, and many other countries, has merged the accounting classification to fit into its own institutional structure and analytical needs. Until the end of the 1980s, key sectors listed out under the capital account were: (i) private capital, (ii) banking capital, and (iii) official capital. Private capital Continue reading
The Seven Dimensions of Culture by Fons Trompenaars
Fons Trompenaars is the author who belongs to dutch he is one the author of cross cultural communications. Fons studied economics from free university of Amsterdam and he got hid PhD from Wharton school. Trompenaars and Charles hampden have developed a culture which have seven dimensions. Five of his dimensions covers the way in which people interact with each other. The seven dimensions of culture by Trompenaars are explained below. 1. Universalism (vs. Particularism) Universalism/particularism distinguishes societies based on the relative importance they place on rules and laws as opposed to personal relationships. The basic question is: “What is more important–rules or relationships?” Members of universalistic societies focus more on rules, codes, values and standards and believe that they take precedence over the needs and claims of friends and other personal relationships; believe that rules or laws can be applied to everyone and should be used to determine what is Continue reading
Pricing to Market Concept
One important aspect of Purchasing Power Parity (PPP) doctrine is its espousal of law of one price, i.e. assuming one-way transport costs and tariffs. A HMT watch will be priced the same whether it is sold either in Mumbai or New York. But in the literature of international finance two stylized facts are prominently mentioned. First, real exchange rate movements are seen to be very persistent at the aggregate level of the economy. Second, individual prices of traded commodities tend to be sticky in terms of local currency at the micro level. Engel (1993) has compared the relative prices of different commodities within the same country versus relative price of the same commodity across different countries and he has reached the conclusion that the former measure is less variable in all but a few cases such as primary commodities and energy. Also Engel finds Continue reading