International Payments Payments

International Payments Payments

International Payments, payments for goods or services bought from people in other countries. It a British citizen buys a bicycle from a fellow Briton he pays in cash in the form of pounds sterling. If he wishes to buy a car made in Italy payment to the Italian seller is more complicated. The pounds sterling of the buyer must somehow be converted into the lire required by the seller. This introduces a new element the foreign exchange rate, or the price of lire in terms of pounds. For some time it stood at 1,740 lire to Li, so if the car cost 1,740,000 lire in Italy (ignoring tariffs, purchase tax and transport costs) the British citizen paid £1,000 to his bank, which bought 1,740,000 lire, and paid them to the seller. The price of lire in terms of pounds, like any other price, varies in response to supply and demand, which in turn vary according to the balance of payments between Italy and Britain. If the balance goes against Britain the demand for sterling and its price will tend to fall. If Britain has a balance of payments surplus the demand for sterling and its price rise. Demand for a currency and the supply of it are equated by the exchange rate, so that at the ruling price banks and brokers can buy foreign currencies to settle international transactions.

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