98 INTERNATIONAL FINANCIAL MANAGEMENT
• ThestageofeconomicdevelopmentofthecountrymayalsoinfluencetheBOPequi-
librium. A developing country may have to import a large quantity of capital goods,
along with raw materials, components, and technology. This may lead to disequilib-
rium in the BOP of the country.
• Thecostatwhichacountryborrowsorlendsfundsalsoinfluencestheequilibrium
position of the BOP. Economic transactions between nationals give rise to supply and
demand for a country’s currency, which in turn determines the foreign exchange rate.
As economic transactions between a country and other nations depend on income
and price changes in the country, disequilibrium (deficit or surplus) in the BOP of a
country ...