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Financial Forces Effecting Balance of Payments

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Please help with the following problem.

Explain how financial forces such as tariffs, taxes, inflation, and currency exchanges effect the balance of payments.

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Solution Summary

The following solution explains how tariffs, taxes, inflation, and currency exchanges affect the balance of payments.

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Generally speaking, tariffs, inflation, and taxes work to reduce payment balances. Currency exchanges increase and decrease payment amounts equally depending upon the condition of the economy.

Considering tariffs: if company XYZ exports motorcycles from its facility in Japan to the United States and the US imposes tariffs on them as a direct result of congressional lobbying from domestic manufacturers, then the company's payments resulting from sales would decrease. This makes profitable business a difficult prospect because the consumer is generally not willing to pay a higher price for the imported motorcycle. As a result, company XYZ must make up the difference by increasing its market share or cut production costs ...

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