Balance of payments


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Balance of payments

  1. 1. Balance of Payments
  2. 2. IntroductIon: Every business/firm prepares its annual final accounts and balance sheet of its transactions with the rest of the society with a view to knowing its Profit or loss and assets and liabilities. Lly, every nation carrying out economic transactions with foreign countries Prepares its balance of Payment accounts periodically with a view to taking stock of its assets and liabilities & its receipts from and payment obligations to the rest of the world.
  3. 3. defInItIon & Importance of Bop: A systematic record of all economic transactions between the residents of a country and residents of foreign countries during a certain period of time is called balance of payment. The System of recording the economic transactions is double entry bookkeeping system. Economic transactions include all such transactions that involve the transfer of title or ownership. While some transactions involve physical transfer of goods , services, assets and money along with the transfer of title, some transactions do not.
  4. 4. uses of Bop: It Provides an extremely useful data for the economic analysis of the country’s weakness & strength as a Partner in international trade. BOP also reveals the changes in the composition and magnitude of foreign trade. BOP also Provides indications of future repercussions of countries Past trade Performances.
  5. 5. Bop accounts: There are two broad categories of BOP Transactions: Current transactions: It Pertain to export & Import of goods & services that change the current level of consumption in the country or bring a change in the current level of national(money) income.
  6. 6.  Capital transaction: are those transactions which increase or decrease a country’s total stock of capital , instead of affecting the current level of consumption or national income.
  7. 7.  In accordance with the two kinds of transactions, BOP accounting is divided into two major accounts: Current A/c Capital A/c.
  8. 8. current account: Current account can be further grouped as:1) Visible items(export & Import of goods)2) Invisible items(all other items in the current account payment & receipt for the services such as banking , insurance and shipping etc.)
  9. 9.  But , sometimes another category called “unrequired Transfer ” is created to give a separate treatment to the items like gifts , donations, military aid , technical assistance etc.
  10. 10. capItal account: Broad categories of capital account items area) Short-term capital movementb) Long-term capital movementc) Changes in the exchange reserves
  11. 11. short-term capItal movementI.Purchase of Short-term securities such astreasury bills, commercial bill &acceptancebillII.Speculative purchase of foreign currencyIII.Cash balances held by foreigners forreason as fear of war, political instability &so on
  12. 12. long-term capItal movementsI. Direct investments in shares bonds and in real estate and physical asset such as plant, building, equipment & so forth in which investors hold a controling powerII. Portfolio investment in stocks & bonds such as government securities, securities of firms not entitling the holder with controlling power