Question

Differentiate between the following:
(a) BOT and BOP
(b) Fixed and Flexible exchange rates

Answer 1

(a) $$\begin{array}{cc}\text{Balance of trade}& \text{Balance of payment}\\ 1.\text{It records only the transactions relating to goods.}& \text{It records the transactions relating to both goods, and services and transfer payments}\\ 2.\text{It does not record transactions relating to account.}& \text{It records the transactions relating to capital account.}\\ 3.\text{It is a part of current account of BOP.}& \text{It includes both current and capital accounts.}\end{array}$$
(b)
$$\begin{array}{cc}\text{Fixed Exchange Rate}& \text{Flexible Exchange Rate}\\ 1.\text{It is officially determined by the government.}& \text{It is determined by the forces of demand and supply.}\\ 2.\text{In this system, central bank is ready to purchase and sell the currencies at fixed price.}& \text{In this system, central bank does not interfere in the foreign exchange rate determination.}\\ 3.\text{A very small variation from the fixed value is possible.}& \text{There are changes in the exchange rate all the time.}\end{array}$$