The content is just an excerpt from the complete note for SS3 First Term Economics Lesson Note – Balance of Payment. Check below to download the complete DOCUMENT
WEEK 5
TOPIC: BALANCE OF PAYMENT
CONTENT:
- Role of money in international trade
- Definition of Balance of payment
- Favorable and unfavorable balance of payment
- Methods of correcting balance of payment problems
Sup-Topic 1: ROLE OF MONEY IN INTERNATIONAL TRADE
International trade is trade between two or more countries. Foreign trade is made possible as a result of international specialization. Money plays prominent roles in international trade.
Roles of Money in International Trade
- It is a medium of exchange of commodities in international trade: – The exchange of goods and services among the residents and governments of various countries across international boundaries is done by money
- In international trade, trade credits are sometimes given and payments are made later.
- Surplus foreign exchange from international trade is kept as reserves in the form of gold or international currency such as dollar.
- It serves as unit of account because balance of trade and payment accounts are recorded in monetary terms.
- At the international level, money can be used for making transfer payment like giving aids to poor countries.
- It facilitates economic development: Foreign capital and skills are being imported , thereby helping the development of developing countries.
TERMS OF TRADE
A term of trade is the rate at which a country’s exports exchange for its import. Simply put, terms of trade are the price ratio between export and import. It is measured mathematically using this formula below:
To gain full access to the note: DOWNLOAD FILE
