ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The balance of trade (which reflects higher or lower demand for a currency) can affect currency exchange rates. A country with a high demand for its goods tends to export more than it imports, increasing demand for its currency. A country that imports more than it exports will have less demand for its currency.

Detailed explanation-2: -Lower prices: A country may have a trade deficit because it is cheaper to purchase goods internationally than to produce them at home. This means that prices of consumer goods and services may decrease. 2. Weakening currency: A trade deficit has the potential to weaken a country’s currency.

Detailed explanation-3: -Importance of Balance of Payment It examines the transaction of all the exports and imports of goods and services for a given period. It helps the government to analyse the potential of a particular industry export growth and formulate policy to support that growth.

Detailed explanation-4: -The BoP statement of a country indicates whether it has a deficit or surplus of funds. For instance, if a country’s export is higher than its import, then there is a surplus in the balance of payments. However, a BoP deficit can arise if a country’s imports amount to more than its total exports.