Question

Advantages and disadvantages of balance of payment

Answer 1

1. It is of great value in forecasting and evaluating its business and economic conditions:

The more accurate the material in the balance of payments, the more valuable it becomes as a basis for the study of the economic and business conditions of a country.

2. Balance of payments can also serve as a basis to evaluate a country’s solvency:

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It is to determine the appropriateness of the exchange value of its currency.

3. It also reveals the nature, size, composition and direction of a country’s international trade:

Trade of visible and invisible items which form part of balance of payments. A close study of it will give an idea of a country’s industrial production and its internal and external demands.

4. It clarifies the foreign exchange position of a country:

This can be used as a basis for businessmen in selecting markets for their products.

5. It also helps to decide the trade, industrial and economic policies of the Government:

If balance of payments is favourable, the Government will take liberal view of imports otherwise different types of restrictions (tariff and non-tariff measures) will be imposed as corrective measures. It will naturally affect the International Trade. Thus it can be said that the study of Balance of Payments position of a country is very useful for an international business as it helps to decide that his domestic or foreign trade policies, programmes, procedures and strategies. It is a basic document that gives a direction to Government Policies and Programmes.

Answer 2

Advantages and disadvantages of balance of payment

Explanation:

Balance of payment (BOP) is a statement showing all the transaction which are economic in nature between a country and rest of the world.

Advantages:

• it represents a countries financial condition , which further helps policy makers in making policies.
• it also helps in future forecasting about the various factors of the country.
• it is a representative statement of countries international trade.

Disadvantages:

• calculation is a tedious and time consuming task.
• it also involves huge cost.

Learn more:

BOP advantages and disadvantages.

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