Bop Managerial Economics

1,852 views

Published on

Published in: Economy & Finance, Business
1 Comment
5 Likes
Statistics
Notes
No Downloads
Views
Total views
1,852
On SlideShare
0
From Embeds
0
Number of Embeds
3
Actions
Shares
0
Downloads
86
Comments
1
Likes
5
Embeds 0
No embeds

No notes for slide

Bop Managerial Economics

  1. 1. Balance of Payments
  2. 2. Contents • • • • • Balance of Payments (BOP). Nature of BOP. Format of BOP. Components of BOP. Balance of Payments ‘Surplus’ and ‘Deficit’. • The BOP of a Country Always Balances. • The BOP Account of a Country. • Specific Uses of BOP for a Business Manager.
  3. 3. Balance of Payments (BOP) “A systematic record of all economic transactions between the residents of the reporting country and residents of foreign countries.”
  4. 4. Nature of Balance of Payments • • • It is a statement having two sides. It is a record of economic transaction. It shows a relation between receipts & payments. • Visible & Invisible items both are included in this statement. • It is prepared for a certain period of time.
  5. 5. Format of Balance of Payments • Current Account • Capital Account • Official Reserves Account
  6. 6. Components of Balance of Payment • Current Account- The current account of a country consists of all transactions related to trade in goods and services and unilateral transfers. • Capital Account- The capital account of a country consist of its transaction in financial assets in the form of short-term and longterm lending and borrowing.
  7. 7. Components of Balance of Payment (Contd…) Official Reserves Account • In fact it is a part of capital account. But in UK and USA balance of payments accounts shows as a separate account. • It measures the change in nation’s liquid and non liquid liabilities to foreign official holders and the change in nation’s official reserve assets.
  8. 8. BOP Surplus and Deficit • BOP Surplus- An imbalance in a nation's balance of payments in which payments made by the country are less than payments received by the country. This is also termed as favorable balance of payments. • BOP Deficit- An imbalance in a nation's balance of payments in which payments made by the country exceed payments received by the country. This is also termed as unfavorable balance of payments.
  9. 9. Balance of Payments of a Country Always Balances • The debit side shows the use of total foreign exchange acquired in a particular period. • The credit side shows the sources from which the foreign exchange is acquired during a particular period. • Against every credit entry, there is an offsetting debit entry & vice-versa, so the receipts and payments on these two sides must be equal. Hence the two sides must necessary balance.
  10. 10. Balance of Payments of a Country Always Balances (Contd…) • Eg : If X imports from Y, Y should also import from X. Hence, there would be a debit and credit entries in the balance of payments of both the countries X & Y. • The individual items in the balance of payments may not balance. But the total credits of the country must be equal to its total debits. • If there is any deficit in any individual account, it would be covered by a surplus in other accounts. • If there is any difference between total debits and total credits, it would be settled under ‘errors & omissions’. • Hence, in the accounting sense, the balance of payments of a country always balances.
  11. 11. Balance of Payments (BOP) Account of a Country
  12. 12. Balance of Payments (BOP) Account of a Country (Contd…) • The items 1 to 7 show the total receipts from all sources. These receipts amount to Rs. 1000 Crores. • The items 1(a) to 7(a) show the total payments on all accounts. These payments amount to Rs. 990 Crores. When item 8 included, the total payment is Rs. 1000 Crores. Hence, the total credit is equal to the total debit. • Thus the current a/c and capital a/c balance each other. Thus surplus in current a/c is equal to the deficit in the capital a/c. A deficit in current a/c is equal to the surplus in the capital a/c. • In the above given table, the balance of current a/c shows a deficit of Rs. 200 Crores. But there is a corresponding surplus of Rs. 200 Crores in the balance of capital a/c. • Hence, the credit and debit side balance & the balance of payments is in equilibrium.
  13. 13. Specific Uses of BOP for a Business Manager • A study of a country’s balance of payments can help him in deciding whether he can borrow/raise funds in a particular country or invest his funds there. • A proper analysis of balance of payments data can reveal trends in factors that underlie the value of the country’s currency in a foreign market.
  14. 14. THANK YOU

×