Advantages of Balance of Payments

The study of balance of payments has become a matter of great interest to all
concerned. It has been said that Balance of Payments is just like a financial statement
of a bank or a business that reveals the financial condition of the country.
The document is so important that it is considered as an economic barometer of a
countrys health. It can furnish the key to an understanding of a countrys economic
problems.
Other use of payments are as follows:
1. It is of great value in forecasting and evaluating its business and economic
conditions:
The more accurate the material in the balance of payments, the more valuable it
becomes as a basis for the study of the economic and business conditions of a country.
2. Balance of payments can also serve as a basis to evaluate a countrys
solvency:
It is to determine the appropriateness of the exchange value of its currency.
3. It also reveals the nature, size, composition and direction of a countrys
international trade:
Trade of visible and invisible items which form part of balance of payments. A close
study of it will give an idea of a countrys industrial production and its internal and
external demands.
4. It clarifies the foreign exchange position of a country:
This can be used as a basis for businessmen in selecting markets for their products.
5. It also helps to decide the trade, industrial and economic policies of the
Government:
If balance of payments is favourable, the Government will take liberal view of imports
otherwise different types of restrictions (tariff and non-tariff measures) will be imposed
as corrective measures. It will naturally affect the International Trade. Thus it can be
said that the study of Balance of Payments position of a country is very useful for an
international business as it helps to decide that his domestic or foreign trade policies,
programmes, procedures and strategies. It is a basic document that gives a direction to
Government Policies and Programmes.