Syllabus T. Y. B. A. Paper : IV advanced economic theory with effect from academic year 2010-11 in idol

 
Government reforms to overcome this crisis: 
Half a percent point of cash margins were imposed on 
imports other than capital goods imports. 

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Foreign institutional investments in stocks were permitted 
and Indian companies were allowed to raise resources form 
international capital markets through GDRs (Global 
Depository Receipts) 
FDI were liberalized and multinationals companies were free 
to invest their resources in infrastructure. 
GOI gave significance to self-sufficiency rather than 
importing from out. During 60-70 imports were too high than 
exports. During 80-90 economy slowly got liberalized. Many 
measures GOI took for increasing exports. 
 
Check your progress: 
1) What is currency crisis? 
 
 
 
 
 
 
 
 
 
 
11.7 SUMMARY 
1. According to him Gustav Casell, 
―The rate of exchange between 
two currencies must stand essentially on the quotient of the internal 
purchasing powers of these currencies.‖ 
2. Thus, according to the purchasing power parity theory, the 
exchange rate between one currency and another is in equilibrium 
when their domestic purchasing powers at the rate of exchange are 
equivalent. 
3. Balance of Payments is a systematic record of economic 
transaction between the residents of the reporting country and the 
residents of foreign countries during a given period of time. 
4. Technically, BOP is always in equilibrium indicating debit and 
credit (receipts and payments) same. It applies double-entry 
system of accounting principles, but in real sense either there is 
surplus or deficit in the value of total transaction. This imbalance is 
known as disequilibrium. Most of the deficit (due to high import 
and less export) is termed as BOP disequilibrium. 
5. Disequilibrium in BOP can be adjusted by monetary and non- 
monetary measures. 

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6. The adjustment mechanism of BOP can be explained with the 
help of Devaluation: The elasticity approach and Devaluation: The 
absorption approach. 
7. A currency crisis is also called a balance-of-payments crisis. 
It occurs when the value of a currency changes quickly, 
undermining its ability to serve as a medium of exchange or a store 
of value. It is a type of financial crisis and is often associated with 
a real economic crisis.