MBA-IV, Uniglobe College, Kathmandu, Nepal

1. PRESENTATIONPRESENTATION
ONON
SIGNIFICANCESIGNIFICANCE
OFOF
BALANCE OF PAYMENTBALANCE OF PAYMENT
PRESENTED BY:PRESENTED BY:
PAWAN KAWAN
ROLL NO: 14
MBA IV TRI
UNIGLOBE COLLEGE
1

2. 2
Balance of Payments
 The Balance of Payments is the statistical record of a
country’s international transactions over a certain period of
time presented in the form of double-entry bookkeeping.
 Typically maintained in a single currency.

3. Significance of BOP
 The BOP provides detailed information about the
supply and demand of the country’s currency.
 The trade statistics in the Current Account, for example,
show the composition of trade – what a country imports
and what it exports.
 The Capital Account shows inflows and outflows of
capital in various categories.
 Helps to evaluate the economic performance of the
countries in international trade
3

4. Significance of BOP Cont…
 Helps in identifying appropriate trading
partner
 Provides economic information about a
particular country
 BOP position gives important input for the
anticipation of appreciation or depreciation
of a particular country’s currency
4

5. Balance of Payment Accounts
 Double-entry bookkeeping
each entry is recorded twice.
 A debit entry ⇐ a payment to foreigners
 A credit entry ⇐ a receipt from foreigners
5

6. Example 1
 Suppose that Boeing Corporation exported a
Boeing 747 aircraft to Japan Airlines for $50
million and that Japan Airlines pays from its dollar
bank account kept with Chase Manhattan Bank in
New York City. Then the receipt of $50 million by
Boeing will be recorded as a credit(+), which will
be matched by a debt (-) of the same amount
representing a reduction of the U.S. bank’s
liabilities.
6

7. Entry of Example 1
Transactions Credit Debit
Boeing’s export + $50 million
Withdrawal from
U.S. bank
- $50 million
7

8. Example 2
 Suppose that Boeing imports jet engines produced
by Rolls Royce for $ 30 million, and that Boeing
make payment by transferring the funds to a New
York bank account kept by Rolls Royce. In this
case, payment by Boeing will be recorded as a debit
(-), whereas the deposit of the funds by Rolls Royce
will be recorded as a credit (+).
8

9. Entry of Example 2
9
Transactions Credit Debit
Boeing’s import - $ 30 million
Deposit at U.S.
bank
+ $ 30 million

10. 10
 They are composed of the following:
 The Current Account
 The Capital Account
 The Official Reserve Account
Balance of Payments Accounts

11. Balance of Payments Accounts
Cont…
 Current Account
 The current account includes the export and import of goods and
services.
 Capital Account
 It includes all purchases and sales of assets such as stocks, bonds, bank
accounts, real estate and businesses.
 Official reserve account
 It covers all purchases and sales of international reserve assets such as
dollars, foreign exchanges, gold and special drawings rights (SDRs)
11

12. 12
Balance of Payments Trends
in Major Countries
 From 1982-2000, U.S. has had continual annual trade deficits (-
CA) with the rest of the world (ROW), along with annual capital
surpluses (+KA), in roughly equal annual amounts.
 China has been running trade surpluses AND capital account
surpluses. For example, in 2002 China had a $35.4B trade
surpluses and a $6.4B capital inflow.

13. Impact on Currency
 CA: All the other factors constant, a deficit balance
on a country’s current account implies that there is
excess supply of its currency in the foreign markets.
Hence, its currency should depreciate.
 KA: All other factors constant, a surplus balance in
a country’s financial account implies that there is
excess demand for assets denominated in its
currency. Hence, its currency should appreciate.
13

14. Balance of payments crisis
 A BOP crisis, also called a currency crisis, occurs when a
nation is unable to pay for essential imports and/or service
its debt repayments.
 Typically, this is accompanied by a rapid decline in the
value of the affected nation's currency.
14

15. Imports and Exports trend of
Nepal
15

16. THANK YOU
16