BALANCE OF PAYMENTSubmitted bySAHIL CHAUHANMBA 3RD SEM

CONTENTSB.O.P

TRANSFER PRICING

DUMPING

PRICE ESCALATION

BALANCE OF TRADE

THEORIES OF INTERNATIONAL TRADE

INTRODUCTION TO B.O.P

Balance of payment is a record of a country’s

trade dealing with the

rest of the world

B.O.P analysis

that which country is a strong exporter

and importer

TRANSFER PRICING

It Is A Condition In Which One Company Sells Good To Another Company But Both

Companies Have

Common Ownership.

TRANSFER PRICING INCLUDES • Market

price methods

• Negotiation

The motive is to reduce the tax

paid

Contd….

EFFECT OF TRANSFER PRICING

It actually relates with multinational companies

as they pay high taxation rate.

Mnc’s basically deals with more then one

country and they have to deals with the different

taxation policies

DUMPINGWhen a firms sell its product lower then its cost of production then it is known as dumping.

In the context of I.B.E When one country exports a sizeable amount of goods to another country lower then its cost in domestic country is known as dumping.

The W.T.O permits to take action against the dumping both for this the govt. has to prove that dumping is going on.

CONTD…There are many ways to find that the product is dumped heavily or lightly.• Price in the

exporters market • The price charged

by the exporter in another country

• Calculation of the companies normal cost of production including normal profit

GATT article 6 allows the country

to take action against it by

charging extra import duties .

COMPETITION POLICY

Most countries have introduced various

regulations to not only promote the competition

but also to restrict monopoly practices.

For ex HOFFMAN-LA

ROCHE

PRICE ESCALATION Difference between the

domestic price and target price in international

market.

It is basically due to certain reason that

causes hike in the price of the product

Duties

Dealer margin‘s

Transportation cost

Basic structure of price escalation

Duty is levied on CIF

First markup is on the CIF plus duty value

Second markup is on the CIF plus duty plus first

markup

Dealer mark up is on the CIF plus duty plus

first markup plus second markup

BALANCE OF TRADE Basically it is the difference

between imports and

exports

• Price of product manufactured at home • Exchange rate and currency fluctuation• Regional and other trade agreements both tariff and non tariff

• Other taxes

Factors affecting B.O.P

are :-

Record of India of last few year

INTERNATIONAL THEORIES

These theories explain regarding what, how much and with whom a country shouldtrade. These explanations are given by different economists during different periods

Mercantilist’s Version:

Classical Approach: -

THEORY OF ABSOLUTE COST ADVANTAGE

According to thistheory the productive efficiency differed among different

countries because ofdiversity in the natural and acquired resources possessed by

them.So a particular country should specialize in producing only those goods that it is

able to produce with greater efficiency or at lower cost; and exchange those goods

with other goods of their requirement from a country that produces those other

goods with greater efficiency or at lower costThis theory of absolute cost advantage explains how trade helps increase the

totaloutput in the two countries

For ex Bangladesh and Pakistan

Theory of Comparative Cost Advantage

Ricardo focuses not on absolute efficiency but on relative efficiency of the country

forproducing goods. This is why his theory is

known as theory of comparative costadvantage.

In a two-country, two-commodity model, he explains that a country will produce

onlythat product which it is able to produce

efficiently

This theory explains that a country

should specialize in the production and

export of a commodity in which it

possessgreatest relative

advantage.

Factor Proportions TheoryThis theory explains that in

a two-country,two-factor and two-

commodity framework different countries are

endowed withvarying proportions of

different factors of production

Some countries have large populations and large labor

resources. Others haveabundance of capital but are

short of labor resources.

A country with a large labor force will be able to produce

the goods ata lower cost using a labor

intensive mode of production

Countries with a large supply of capital will

specialize in goods thatinvolve a capital intensive

mode of production

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