Question

The payment of foreign trade is related with
1. The merits of import
2. The merits of export
3. The multiplier of foreign trade
4. Balance of payment

Answer 1

Correct Answer - Option 4 : Balance of payment

The correct answer is Balance of Payment.

• Balance of Payment (BOP) of a country can be defined as a systematic statement of all economic transactions of a country with the rest of the world during a specific period usually one year.
• The balance of payments includes both the current account and capital account.
• The current account includes a nation's net trade in goods and services, its net earnings on cross-border investments, and its net transfer payments.
• The capital account consists of a nation's transactions in financial instruments and central bank reserves.
• The balance of payments (BOP) summarizes all transactions that a country's individuals, companies, and government bodies complete with individuals, companies, and government bodies outside the country. 
• These transactions consist of imports and exports of goods, services, and capital, as well as transfer payments, such as foreign aid and remittances.

• A letter of credit is the most well-known method of payment in foreign/international trade.
• Under an import letter of credit, the importer's bank guarantees to the supplier that the bank will pay mentioned amount in the agreement, once the supplier or exporter meets the terms and conditions of the letter of credit.
• This method of payment plays an intermediary role to help complete the trade transaction. The bank deals only in documents and does not inspect the goods themselves.

• Letters of Credit are issued subject to the Uniforms Customs & Practice for Documentary Credits (UCPDC) (UCP). This set of rules is produced by the International Chamber of Commerce and Industries (CII).
• Merits of import include the Introduction of new products to the market. Many businesses in India and China tend to produce goods for the European and American markets and reducing costs. Another major benefit of importing is reducing manufacturing costs.
• Merits of export access to more consumers and businesses, diversifying market opportunities, and expanding the lifecycle of mature products.