In international trade, when payments of a country are higher than the receipts, then the balance of payment is

Analyze the question: The question asks what we call the balance of payments (BOP) position when a country's payments to the rest of the world exceed what it receives from the rest of the world.

Explain the concept: The balance of payments is a record of all economic transactions between a country and the rest of the world over a period, usually a year. There are three possible positions:

• Receipts > Payments: surplus, also called a favourable balance of payments.
• Receipts = Payments: equilibrium (balanced).
• Receipts < Payments: deficit, also called an unfavourable or adverse balance of payments.

Solution:

1. The question says payments are higher than receipts.
2. That means the country is spending more foreign exchange than it earns, which is a deficit.
3. A deficit is described as an unfavourable (adverse) balance of payments.

Checking the options:

• A. Favourable: this is the case when receipts exceed payments, so it is wrong.
• B. In equilibrium: this needs payments to equal receipts, so it is wrong.
• C. Perfect: this is not a BOP term.
• D. Unfavourable: correct.
• E. Uniform: this is not a BOP term.

Tip: Think of your own pocket money. If you spend more than you receive, your position is bad, or "unfavourable". The same is true for a country: Payments > Receipts = Deficit = Unfavourable. Likewise, Receipts > Payments = Surplus = Favourable.