The balance of payment BOP transaction consist of imports and exports of goods and services and capital as well as transfer payments such as foreign aid its components are transactions between entities in one country and the rest of the world over sometime there are 3 key bop components including the current account capital account and financial account the current account must balance the capital and financial account BOP example is Japan exports 100 cars to US Japan books the export of the 100 cards as a debit in the BP while the US books the import as credit in BOP meaning is the method by which countries pleasure all of the International Monetary transaction with a certain. The BP consist of current account capital account and financial account

1. LAKHMI CHAND
INSTITUTE OF
TECHNOLOGY
GUIDED BY-
MRS. SANJANA MITRA
MANAGERIAL ECONOMICS
PRESENTED BY-
AYUSH SHUKLA
MANISH PANJWANI
PAWAN PATEL
MANSI SAHU
VARSHA BHOJWANI

2. TOPICS COVERED
FOREIGN EXCHANGE(FOREX)
CONSUMER PRICE INDEX(CPI)
WHOLESALE PRICE INDEX(WPI)
BALANCE OF PAYMENTS(BOP)

3. FOREIGN
EXCHANGE
(FOREX)
-BY MANISH & AYUSH

4. What Is Foreign Exchange (Forex)?
Foreign Exchange (forex) is the trading of one
currency for another. For example, one can swap
the U.S. dollar for the euro. Foreign exchange
transactions can take place on the foreign
exchange market, also known as the forex market.
EXCHANEG

5. FUNCTIONS OF FOREIGN EXCHANGE MARKET:-
TRANSFER FUNCTION:- It transfer purchasing
power between the countries involved in the
transaction.
CREDIT FUNCTION :- It provides credit for foreign
trade .bills of exchange, with maturity period of
three month’s.
HEDINGING FUNCTION:-When exporters and
importers enter into an agreement to sell and buy

6. KINDS OF Foreign EXCHANGE MARKET :-
Foreign exchange markets are classified on the basis of whether
the foreign exchange transactions are sot or forward
accordingly, there are two kinds of foreign exchange markets :-
1) SPOT MARKET.
2) FORWARD MARKET.

7. SPOT MARKET :-
 Spot market is of daily nature and deals only in
spot transactions of foreign exchange.
 Generally, a time of 2 business days is permitted
to settle the transaction.
 The rate which prevails is termed as spot
exchange rate.

8. FORWARDMARKET.
Forward market refers to the market in which
foreign exchange is settled on a specified
future date .
The rate agreed upon today.
Most of the international transactions are
signed on one date and completed on a later
date.

9. WHAT IS EXCHANGE RATE?
 An exchange rate is the value of a country's currency
vs. that of another country or economic zone.
 Most exchange rates are free-floating and will rise or fall
based on supply and demand in the market.
 For example, if the exchange rate between the U.S.
dollar (USD) and the INDIAN rupee is 74.54 per dollar,
one U.S. dollar can be exchanged for 74.54 rupee in
foreign currency markets.

10. CONSUMER PRICE
INDEX(CPI)
-BY PAWAN

11. CONSUMER PRICE INDEX (CPI)
 DEFINITION
• CPI is the universal measure used for estimating the
general price level of the goods and services produced in
any nation.
• Consumer Price Index or CPI as it is commonly called is
an index measuring retail inflation in the economy by
collecting the change in prices of most common goods and
services used by consumers.

12. IMPORTANT ELEMENTS OF CONSUMER PRICE
INDEX (CPI)
For understanding CPI, it is necessary to understand
the following terms:
1. Market Basket: Market basket is nothing but the
group of goods and services used to analyze the
changes in their prices year to year.
2. Index: The index controls the basket price outset
on a base date.

13. Calculate the inflation rate
Take the Consumer Price Index to compute the
inflation rate, which is the proportion of change in the
price index from the previous period, i.e., the
inflation rate among two successive years is
calculated as follows:
FORMULA FOR COMPUTING CONSUMER
PRICE INDEX (CPI)

14. CONCLUSION
Consumer Price Index is a method to measure
inflation that is commonly used throughout the world.
Each country examines different sets of goods but
uses a similar approach. The CPI is determined by
variations in the cost of goods and services in the
market basket.

15. Wholesale price index
-BY MANSI

19. WHY WPI IS USED IN INDIA ?

20. Calculations:

21. Difference between Wholesale price index and consumer price index

22. BALANCE OF
PAYMENTS
-BY VARSHA

23. CONTENTS
DEFINITION
FLOWCHART
FEATURES
COMPONENTS
SITUATIONS OF BOP
CAUSES OF DISEQUILIBRIUM
MEASURES TO CORRECT DISEQUILIBRIUM
BOP V/S BOT
CONCLUSION

24. DEFINITION
• The balance of payments (BoP) is the systematic
record of all the economic transactions between
the residents of a country and the rest of the
world carried out in a specific period of
time(usually 1 year) .
• It includes visible items , invisible items &
capital transfers.

25. BALANCE OF PAYMENT
CURRENT ACCOUNT
BALANCE
OF TRADE
BALANCE
OF
SERVICES
CAPITAL ACCOUNT
RECEIPTS &
PAYMENTS
Deals with import &
export of
merchandise
(tangible or visible)
Deals with import &
export of services
(intangible or
invisible)

26. FEATURES
• SYSTEMATIC
• INCLUDES BOTH VISIBLE AND INVISIBLE ITEMS
• RELATES TO PARTICULAR PERIOD OF TIME. GENERALLY IT’S AN ANNUAL
STATEMENT.
• ADOPTS DOUBLE ENTRY BOOK KEEPING SYSTEM.
RECEIPTS- CREDIT SIDE (EARNINGS)
PAYMENTS- DEBIT SIDE (SPENDINGS)

27. COMPONENTS
1 CURRENT
ACCOUNT
2. CAPITAL
ACCOUNT
3. RESERVE
ACCOUNT
4. ERROR &
OMISSIONS

28. 1. CURRENT ACCOUNT
 It is the statement of actual receipts & payments relating to import & export of goods
and services and unilateral transfers during a year.
 It includes;
o export and import of visible & invisible items
o Unilateral transfers - between resident and non-resident , gifts , donation, cash
grants.
o Income receipts & payments from and to abroad - interests, profits, dividends.
 Structure;
o Exports- positive items
o Imports- negative items
o Receipts- positive items
o Payments- negative items

29. 2. CAPITAL ACCOUNT
It records all the capital transactions such as loans and investments
between one country and the rest of the world.
It includes;
o Foreign investment- FDI & FII (portfolio investments)
o Borrowings
o Official international reserves
Structure;
o All capital transactions causing flow of FE into the country- positive items
o All capital transactions causing flow of FE outside country- negative items

30. 3. THE OFFICIAL SETTLEMENT ACCOUNT
IMF (international monetary fund), SDR(special drawing rights) &
Reserve and monetary Gold are collectively called as the reserve
assets account or the official settlement account.
 It measures the nation’s liquidity
and non-liquid liabilities during
the year.

31. 4. ERRORS AND OMISSIONS
• It is a balancing item used to equal the debits and credits of the
three accounts in accordance with the principles of double entry
book-keeping so that the balance of payments of the country
always balances in the accounting sense.
• The entries under this head
relate mainly to leads and lags
in reporting of transactions.

32. SITUATIONS OF BOP
EXPORTS > IMPORTS (SURPLUS)
EXPORTS = IMPORTS (EQUILIBRIUM)
EXPORT< IMPORTS (DEFICT)

33. CAUSES OF DISEQUILIBRIUM
NATURAL
ECONOMIC
POLITICAL
SOCIAL
e.g. floods, earthquake etc.
e.g. cyclic fluctuations, inflation,
demonstration effect etc.
e.g. International relation,
political instability etc.
e.g. change in taste and preference
etc.

34. MEASURES TO CORRECT DISEQUILIBRIUM
• MONETARY MEASURES
1. Monetary policy
2. Fiscal policy
3. Exchange rate depreciation
4. Devaluation
5. Deflation
6. Exchange control
• NON-MONETARY MEASURES
1. Export promotion
2. Import substitutes
3. Import control (quotas & tariffs)

35. INDIA’S BALANCE OF PAYMENT
• INDIA is a developing country and experiences a deficit balance of
payments situations.
• It is because imports are more as compared
to exports .
• India requires imported machines,
technology & capital equipments for
industrialization.

36. DIFFERENCE BETWEEN BOP & BOT
BALANCE OF PAYMENT
1. Broad term
2. Include all transactions related to
visible. Invisible & capital transfers.
3. Always balances itself.
4. BOP=current + capital – balancing
item
5. Factors;
a) Conditions of foreign lenders
b) Economic policy of govt.
c) Others
BALANCE OF TRADE
1. Narrow term
2. Only visible items
3. Can be favourable or unfavourable
4. BOT=Net Earning on export - Net
payment for import
5. Factors;
a) Cost of production
b)availability of raw materials
c)exchange rate

37. CONCLUSION
• IN ANY INTERNATIONAL BUSINESS THE CURRENCY
DIFFERENCES & CURRENCY RISKS ARE CHALLENGING,THUS
THE MANAGER/GLOBAL MARKETER SHOULD KNOW THE
BASIC FRAMEWORK REGARDING THIS ISSUE.
• THE KNOWLEDGE OF BOP IS ESSENTIAL FOR EVERY
COUNTRY.
IN ANY INTERNATIONAL BUSINESS
THE CURRENCY DIFFERENCES &
CURRENCY RISKS ARE
CHALLENGING,THUS THE
MANAGER/GLOBAL MARKETER
SHOULD KNOW THE BASIC
FRAMEWORK REGARDING THIS
ISSUE.
THE KNOWLEDGE OF BOP IS
ESSENTIAL FOR EVERY COUNTRY.

38. THANK YOU!