The document discusses the balance of payments (BOP) accounting system of a country. It has three key points: 1. The BOP accounting system records all international transactions including exports/imports of goods, services, financial capital and transfers. It uses double-entry booking with debits and credits and tracks surpluses and deficits. 2. The BOP is divided into four major accounts - the current account, capital account, official reserve account, and errors and omissions account. The current account tracks trade in goods and services plus investment income and transfers. The capital account covers foreign direct and portfolio investment. 3. BOP statistics are important for international businesses as they can identify new markets, warn

1. BALANCE OF PAYMENT
OF ACCOUNTING SYSTEM
BOP
AMIRAH,UITM

2. WHAT IS BOP?
O Transactions include payments for the
country's exports and imports of
goods, services, financial capital, and
financial transfers.
O Double-entry booking system (debit &
credit)
O surplus / deficit
O Supplies vital information - national economy
& likely changes in its fiscal & monetary
policy
O Highlight a country's competitive strengths
and weaknesses
O Achieving balanced economic- growth.

3. Why is BOP important to
international businesspeople
O BOP statistics help identify emerging market
for good and services
O They can warn of possible new policies that
may alter a country’s business climate, thereby
affecting the probability of a firm’s operation
in that country.

4. O They can indicate reduction in a country’s foreign
reserve, which may mean that a country’s currency
will depreciate in the future.
O They can signal increased in the risk of lending to a
particular country.

5. BALANCE OF PAYMENT
The BOP accounting system can be divided conceptually into 4
major account,which is:
CURRENT ACCOUNT
CAPITAL ACCOUNT
OFFICIAL RESERVE ACCOUNT
ERROR AND OMISSION ACCOUNT

6. EXPORT AND EXPORT AND
IMPORT OF IMPORT OF
MERCHANDISE SERVICE
CURRENT ACCOUNT
INCOME ON GIFT/
INVESTMENT UNILATERAL
TRANSFERS

7. EXPORT AND IMPORT OF MERCHANDISE
The first item record the exports and imports of merchandise or goods.The
difference between a country exports and import of goods is called THE
BALANCE OF MERCHANDISE TRADE.
If IMPORTS of merchandise is more than its country EXPORTS
TRADE DEFICIT
If EXPORT of merchandise is more than its country IMPORTS
TRADE SURPLUS

8. EXPORT AND IMPORT OF SERVICE
The second items record the sale(exports) and purchase(imports)
of service to and from another country.The term TRADE IN
INVISIBLES is also used to describe trade in services.
The difference between a country ‘s export of services and its
import of services is called THE BALANCE ON SERVICE TRADE

9. INCOME ON INVESTMENT
The third item is income Malaysian residents earn from their foreign
investment.This income is viewed as AN EXPORT OF THE SERVICE
OF CAPITAL by Malaysian.Income earned by foreigners from their
investment in Malaysia is known as AN IMPORT OF THE SERVICES OF
CAPITAL by Malaysia.
GIFT/ UNILATERAL TRANSFERS
These are gift between residents of one country and another country.

10. CAPITAL
ACCOUNT
FOREIGN PORTFOLIO
DIRECT INVESTMENT
INVESTMENT
SHORT
TERM
LONG
TERM

11. FOREIGN DIRECT INVESTMENT
FDI is any investment made for the purpose of controlling the
organization in which the investment is made.It records the net
balance of capital that flows out of and into the country for the
purpose of exerting control over assets.

12. PORTFOLIO INVESTMENT
Portfolio investment is any investment made for purpose other than control
or ownership of assets.It is capital that is invested in activities that are purely
profit-motivated(return) than ones made in the prospect of controlling or
managing or directing the investment.It include:
SHORT TERM PORTFOLIO INVESTMENT
-These are financial instrument such as shares,debt securities,treasury bills
or bonds with maturity of 1 year or less.
LONG TERM PORTFOLIO INVESTMENT
-These are stocks,bond,bank loans and other financial instrument issued by
private and public organization that have maturity greater than 1 year and
that are held for purpose other than control.

13. CAPITAL ACCOUNT TRANSACTIONS
MATURITY MOTIVATION TYPICAL
INVESTMENT
PORTFOLIO 1 year or less Investment Checking acc
(short term) income or balances
facilitation of Time deposits
international Commercial
commerce paper
Bank loans
PORTFOLIO More than 1 year Investment Gov
(long term) income bills,notes,&bond
Corporate stocks
&bond
FOREIGN inderterminate Active control of Foreign
DIRECT organization subsidiaries
INVESTMENT (own at least Foreign factories
10% of voting International joint
stock) ventures

14. Official Reserves Account
-Records the level of official reserves held by a
national government .
-Used to intervene in the foreign-exchange market
and in transactions with other central banks .
-Four types : Gold
Convertible currencies
Special Drawing Rights
Reserve positions at the IMF

15. Errors And Omissions Account
O The fact of the BOP accounting system is that the
BOP must balance .
O Equation : current acc + capital acc + errors &
omissions + official reserves acc = 0
O Large portion of the errors and omissions is
probably due to under reporting of capital account
transactions .
O Sometimes , errors and omissions due to deliberate
actions and frequently illegal such as drug
smuggling , money laundering .
O Other are related to the current account particularly
merchandise exports and trade in services .

16. Defining BOP Surpluses and
Deficits
BOP
Current account Official Settlements
Capital Balance
Account
Trade Surplus = Trade Deficits
Exports > =Exports <
Imports Imports
Inflow Outflow

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