Explains BOT, BOP & Components of BOP ..

2. BALANCE OF TRADE
• Relationship between the monetary value of
EX-IM of output (only visible goods) in an
economy over a certain period (annually).
Exports > Imports = Trade surplus
Exports < Imports =Trade deficit (trade gap)

4. Balance of payment
• Systematic record of all economic transactions
between residents of one country and residents
of foreign countries (both visible and invisible)
Credit Balance →Receipt of Foreign Exchange
from abroad.
Debit Balance →Payment in Foreign Exchange to
foreign residents.

5. Features of BOP
Receipts and payments in international transactions
of a country
Includes all transactions, visible as well as invisible
Period of time – annual statement
Adopts double entry book keeping system.
[Receipts (credit) & Payments (debit)]

6. COMPONENTS OF BOP
Current Account
Capital Account
Unilateral payment account
Official settlement account

7. Current account (BOT)
• Represents the real income, actual receipts
and payments regarding goods in short
period.
Merchandise : Export – Import
Export > Import → Surplus BOT
Export < Import → Deficit BOT

8. Capital account
Credit Balance →Inflow of foreign country to home
Debit Balance →Outflow of capital of home country to foreign.
1. D/B the
receipts and
payments
on capital
account
(financial
transactions)
3. Involves inflows
and outflows relating
to investments (Short
term/ medium term
to long term
borrowing/lending)
4. It includes: - private
foreign loan flow,
movement in banking
capital, official capital
transactions, reserves,
gold movement etc.
2. Either
surplus or
deficit in
capital
account

9. Capital Account
1.Private capital
• Long term (more than one year):
Foreign investments
Long term loans
Foreign currency deposits
• Short term private capital (<1 year)

10. Capital acc…
2. Banking capital
• Mobility in external financial assets
• Liabilities of commercial and cooperative
banks authorized to deal in foreign currency
3. Official capital
• RBI holdings in terms of foreign currency

11. Unilateral payment account
Donations,
gifts,
compensations
etc.
Government
grants,
Private
remittance
Disaster
relief,
Emergency
relief
Funds from
foreign
during
critical
situations,
Charities
Receipts from foreign countries-- Credit
Payments made by home country -- Debit

12. Official settlement account
• The surplus of capital and current account are
transferred to ORA. It can be used where there
occurs future deficit.
• Special Drawing Rights (SDRs) are a reserve asset created by
IMF and allocated from time to time to member countries. It
can be used to settle international payments between monetary
authorities of two different countries.
Official sale of foreign currencies & reserves to foreign
countries = Credit
Official purchase of foreign currencies & reserves from
foreign countries = debit

14. Conclusion
Equalization of
Totalreceipts and Total payments
=
Balance Of Payments