PREPARED BY

SOWMYA

PGT, ECONOMICS

DAV GIRLS SR. SEC. SCHOOL, GOPALAPUTAM

BALANCE OF PAYMENT

Is an accounting statement that provides a systematic record of all the economic transactions, between the residents of the country and the rest of the world, in a given period of time.

ECONOMIC TRANSACTIONS�

• VISIBLE ITEMS
• Includes all types of physical goods which can be imported and exported. Movement of such items can be monitored by custom officials

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• INVISIBLE ITEMS
• Includes all kinds of services that can be exported and imported like shipping, banking and insurance

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• UNILATERAL TRANSFERS
• Includes gifts, grants, personal remittances and other one way transactions.

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• CAPITAL TRANSFERS
• Relates to capital receipts and capital payments ( borrowings, capital repayments)

IN ACCOUNTING SENSE�BOP always balances

IN ECONOMIC SENSE

• BALANCED
• BOP
• Receipts of foreign exchange IS EQUAL TO Payments of foreign exchange

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• SURPLUS
• BOP
• Receipts of foreign exchange IS MORE THAN Payments of foreign exchange

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• DEFICIT
• BOP
• Receipts of foreign exchange IS LESS THAN Payments of foreign exchange

BALANCE OF TRADE

• Refers to difference between the amount of exports and imports of visible items.

BOT = (X-M)

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Surplus BOT ..... (X>M) ... Favourable BOT

Deficit BOT ..... (X<M) .... Unfavourable BOT

Balance .... (X=M)

COMPONENTS OF BOP

• Current
• account
• Visible transactions

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• Invisible transactions

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• Unilateral
• transfers

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• Investment�income

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• Capital
• account
• Borrowings
• And
• lendings

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• Investment
• To and from
• abroad

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• Change in FOREX
• reserves

��CURRENT ACCOUNT�brings a change in current level of income in an economy�

• VISIBLE ITEMS
• Includes all types of physical goods which can be imported and exported. Movement of such items can be monitored by custom officials

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• INVISIBLE ITEMS
• Includes all kinds of services that can be exported and imported like shipping, banking and insurance

​

• UNILATERAL TRANSFERS
• Includes gifts, grants, personal remittances and other one way transactions.

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• INVESTMENT INCOME
• Rent, interest,profit

Capital account�causes a change in assets or liabilities of the residents of the country/government

• Borrowings and lending of private, government
• Foreign Direct Investment and Foreign Institutional Investment to and from
• Additions and withdrawals of foreign exchange reserves by government

Difference between current account and capital account of BOP account