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Bop

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  • 1. BALANCE OF PAYMENTSTRADEINTERNAL & INTERNATIONAL TRADEVISIBLE & INVISIBLE ITEMSBALANCE OF TRADEBALANCE OF PAYMENTSDISTINCTION BETWEEN BALANCE OFTRADE & BALANCE OF PAYMENTS
  • 2. Balance of Payments BOT BOP It refers to the receipts &  It consists of the overall payments on account of receipts & payments of both visible exports and imports visible and invisible items (merchandise items) (non-merchandise items) It is a narrow concept  It is a wider concept It is similar like customs  It is not similar like customs record record There is disequilibrium (or  Here both exports and imbalance) in BOT i.e. imports must be balanced Exports and imports may not (i.e. in A/c sense) be balanced There is no difference  There is much difference between curr A/C & Cap A/C between Curr A/C & Cap A/C
  • 3. ACCOUNT OF BOP Receipts ( Rs Crs) Payments( Rs Crs)1)Export of Goods 550 5)Import of Goods 8002)Exports of Services 150 6) Imports of Services 503) Unrequited Receipts 100 7) Unrequited Payments 80(Gifts, Indemnities from (Gifts, Indemnities to foreigners etc) foreigners etc)4)Capital Receipts 200 8)Capital Payments 70( Borrowings from, ( Lending to ,Capital CapitalRepayments by or Repayments to or Sale of Assets to Purchase of Assets fromforeigners ) foreigners ) --------------- ---------------Total Receipts 1000 Total Payments 1000
  • 4. Accounti) Current Account: It consists of the imports andexports of visible and invisible items plus theunrequited receipts and payments i. e., items1,2,and 3 and 5,6 and 7.It can be seen that total receipts are ( 550+ 150+100)= 800 while total payments are ( 800+50 + 80) = 930. Thus there is a Deficit of Rs130 on Current Account ii) Capital Account: Capital Account consists oftransactions between countries arising due torepayment to or from the foreign countries of theprevious loan, sale to or purchase from theforeigners of capital assets etcThus it includes item no 4 and item no 8 i e (200-70)= Rs 130 Thus deficit in the Current Account is correctedthrough the surplus on Capital Account“HENCE IN ACCOUNTING SENSE BOP ALWAYSBALANCES”
  • 5. EQUILIBRIUM IN BOP BOP always balances in accounting sense DIS-EQUILIBRIUM IN BOP Existence of Deficit or Surplus
  • 6. TYPES OF DIS- EQUILIBRIUM IN BOP1)CYCLICAL DIS-EQUILIBRIUM Caused due to Cyclical Fluctuations2)SECULAR DIS-EQUILIBRIUM Due to change in the economy from one stage to another (for eco devpt)3)STRUCTURAL DIS-EQUILIBRIUM Due to change in the structure of the economy Eg Decline of a particular industry, Loss of Service, War , Nationalizations etc4)FUNDAMENTAL DIS-EQUILIBRIUM Originally coined by I M F Long-Term Dis-Equm- More than Five Years
  • 7. CAUSES OF DIS- EQUILIBRIUM IN BOP 1) Economic Development of a Country. 2) Increase in Income of people. 3) Rise in Price-Level. 4) Decrease in Exports. 5) Repayment of Foreign Loans. 6) Rapid Growth of Population. 7) Imposition of Tariffs & Non-Tariff Barriers. 8) Lack of International Co- operation
  • 8. Measures to correct Dis- equilibrium in BOPMonetary Measures Non-Monetary Measures1.Deflation2.Exchange Export Promotion Import Restriction Depreciation 1.Reducing export 1.Increasing import3. Devaluation duties dutiesa) Elasticity of Demand 2.Import quotas 2.Export subsidiesb) Elasticity of Supply 3.Licining of import 3.Incentivesc) Cost-Price Structure of specific goodsd) No-Retaliation

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