balance of payment


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balance of payment

  1. 1. INTRODUCTION TO BOP BOP is an accounting systemthat records the economictransaction betweenthe residence & government of the particular country annually.
  2. 2. DEFINITION“The Balance Of Payments of a country is a systematic record of all economic transactions between the ‘residents’ of a country and the rest of the world. It presents a classified record of all receipts on account of goods exported, services rendered and capital received by ‘residents’ and payments made by them on account of goods imported and services received from the capital transferred to ‘non-residents’ or ‘foreigners’.” – Reserve Bank of India (RBI)
  3. 3. BALANCE OF PAYMENT ACCOUNTING  BOP follows the principle of double entry system, which means every international transactions produces debit & credit entries of equal magnitude.  But it is neither an income statement nor an balance sheet.  It is a sources & uses of funds statement that reflects changes in assets & liabilities & net worth during a specific period of time.
  4. 4. ASSETS LIABILITIES OR NET WORTH REPRESENTS Decrease Increase Cr Fund / Sources of fund Increase Decrease Dr Fund / Uses of fund
  5. 5. Sources of fund includes ; export of goods& services  investment & interest earning  unilateral transfer received fromabroad & loans fromforeigners. Uses of fund includes ;  imports of goods& services  dividendpaidto foreign investors  transfer payment abroad & loans to foreigners  increase in reserve assets.
  6. 6. Therefore BOP accounts shows the size of any surplus or deficit , which a nation can have and also indicate the manner in which a deficit was financed or the proceeds of a surplus invested. EXPENDITURE & RECIEPTS Expenditure > Receipts Expenditure < Receipts REPRESENTS Deficit Surplus
  7. 7. IMPORTANCE OF BOP  The BoP is an important indicator of pressure on a country’s foreign exchange rate .  The BOP helps to forecast a country’s market potential, especially in the short run.  Changes in a country’s BOP may signal the imposition or removal of controls over payment of dividends and interest, license fees, royalty fees, or other cash disbursements to foreign firms or investors.
  8. 8. CONTENTS OF BOP Current account Capital account Financial account Net errors and omissions account Reserves and related items: official reserve account
  9. 9. CURRENT ACCOUNT  Net export/import of goods (trade balance)  Net export/import of services  Net income (investment income from direct and portfolio investment plus employee compensation)  Net transfers (sums sent home by migrants and permanent workers aboard, gifts, grants and pensions)
  10. 10. CAPITAL ACCOUNT Capital transfers related to the purchase and sale of fixed assets such as real estate
  11. 11. FINANCIAL ACCOUNT Net foreign direct investment Net portfolio investment Other financial items
  12. 12. NET ERRORS AND OMISSIONS ACCOUNT Missing data such as illegal transfers
  13. 13. RESERVES AND RELATED ITEMS: OFFICIAL RESERVE ACCOUNT  Changes in official monetary reserves including gold, foreign exchange, and IMF position.
  14. 14. COMPONENTS OF THE TRADE  Imports -bulk imports: petroleum, crude & products, bulk consumption goods, other bulk items. -non bulk imports: capital goods, mainly export related items  Exports -agriculture and allied products, ores and minerals, manufactured goods, mineral fuels.
  15. 15. BOP STATEMENT Official Result Account Current Account Capital Account
  16. 16. DIRECTION OF INDIA’S EXPORTS euopean union north america other OECD OPEC eastern europe developing countries
  17. 17. DIRECTION OF INDIA’S IMPORTS european union north america other OECD OPEC eastern europe developing countries