Balance of payment is a record of a country's trade dealings with other countries. It analyzes which countries are strong exporters and importers. Transfer pricing occurs when companies with common ownership trade goods between each other, sometimes to reduce tax payments. Dumping happens when a company exports goods to another country at prices below its domestic production costs, which can harm other countries' industries. A country's balance of trade is the difference between its imports and exports, which can be affected by factors like exchange rates, trade agreements, and taxes. International trade theories explain what and how much countries should trade based on concepts like absolute and comparative cost advantages, and countries' differing endowments of production factors like labor and capital.

1. BALANCE OF
PAYMENT
Submitted by
SAHIL CHAUHAN
MBA 3RD SEM

2. CONTENTS
B.O.P
TRANSFER PRICING
DUMPING
PRICE ESCALATION
BALANCE OF TRADE
THEORIES OF INTERNATIONAL TRADE

3. 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

4. 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….

5. 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

6. DUMPING
When 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.

7. 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 .

8. 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

9. 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

10. 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

11. 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 :-

12. Record of India of last few year

13. INTERNATIONAL THEORIES
These theories explain regarding what,
how much and with whom a country
should
trade. These explanations are given by
different economists during different
periods
Mercantilist’s Version:
Classical Approach: -

14. THEORY OF ABSOLUTE COST
ADVANTAGE
According to this
theory the productive efficiency differed among different countries
because of
diversity 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 cost
This theory of absolute cost
advantage explains how trade
helps increase the total
output in the two countries
For ex
Bangladesh and Pakistan

15. Theory of Comparative Cost
Advantage
Ricardo focuses not on absolute efficiency
but on relative efficiency of the country for
producing goods. This is why his theory is
known as theory of comparative cost
advantage.
In a two-country, two-commodity model,
he explains that a country will produce only
that 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
possess
greatest relative
advantage.

16. Factor Proportions Theory
This theory explains that in a
two-country,
two-factor and two-commodity
framework different countries
are endowed with
varying proportions of different
factors of production
Some countries have large
populations and large labor
resources. Others have
abundance of capital but are short
of labor resources.
A country with a large labor force
will be able to produce the
goods at
a lower cost using a labor
intensive mode of production
Countries with a large supply
of capital will specialize in
goods that
involve a capital intensive
mode of production

17. THANKS..!
!