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Financial Forces Effecting Balance of Payments

Please help with the following problem.

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

Thanks in advance

Solution Preview

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 ...

Solution Summary

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