This document provides an overview of balance of payments (BOP) accounting. It defines BOP as a systematic record of all economic transactions between a country and the rest of the world. It notes that BOP has three main components: the current account balance, capital account balance, and the overall BOP. The current account tracks goods/services exports and imports, while the capital account tracks financial flows. The document also discusses factors that can cause BOP disequilibriums and monetary/non-monetary policy tools to correct imbalances, such as devaluation, export promotion, and tariffs.
Balance of Payment Disequilibrium and CausesNeema Gladys
1.Balance of Payment
The balance of payment of a country is a systematic accounting record of all economic transactions during a given period of time between the residents of the country and residents of foreign countries.
2.Componets of BOP
Current Account
It includes imports and exports of goods and services and unilateral transfer of goods and services.
Capital Account
Under this are grouped transactions leading to changes in foreign assets and liabilities of the country.
3. Accounting Treatment of Items (Debit and Credit Items)
Any item which gives rise to a sale of foreign exchange (an inflow) is recorded as a credit item (+) in the accounts e.g. export of goods and services
Any item which gives rise to the purchase of foreign exchange (an outflow) is recorded as a debit item (-) in the accounts e.g imports of goods and services.
4. BOP Disequilibrium
BOP is a double entry accounting record, then apart from errors and omissions, it must always balance.
The BOP deficit or surplus indicate imbalance in the BOP.
This imbalance is interpreted as BOP Disequilibrium.
A country’s balance of payments is said to be in disequilibrium when its autonomous receipts (credits) are not equal to its autonomous payments (debits).
5.BOP Deficit
A deficit or an unfavorable balance exists when the value of autonomous debit items exceeds the value of autonomous credit items.
6. BOP Surplus
A surplus or a favourable balance exists when the value of autonomous credit items exceeds the value of autonomous debit items.
Balance of Payment Disequilibrium and CausesNeema Gladys
1.Balance of Payment
The balance of payment of a country is a systematic accounting record of all economic transactions during a given period of time between the residents of the country and residents of foreign countries.
2.Componets of BOP
Current Account
It includes imports and exports of goods and services and unilateral transfer of goods and services.
Capital Account
Under this are grouped transactions leading to changes in foreign assets and liabilities of the country.
3. Accounting Treatment of Items (Debit and Credit Items)
Any item which gives rise to a sale of foreign exchange (an inflow) is recorded as a credit item (+) in the accounts e.g. export of goods and services
Any item which gives rise to the purchase of foreign exchange (an outflow) is recorded as a debit item (-) in the accounts e.g imports of goods and services.
4. BOP Disequilibrium
BOP is a double entry accounting record, then apart from errors and omissions, it must always balance.
The BOP deficit or surplus indicate imbalance in the BOP.
This imbalance is interpreted as BOP Disequilibrium.
A country’s balance of payments is said to be in disequilibrium when its autonomous receipts (credits) are not equal to its autonomous payments (debits).
5.BOP Deficit
A deficit or an unfavorable balance exists when the value of autonomous debit items exceeds the value of autonomous credit items.
6. BOP Surplus
A surplus or a favourable balance exists when the value of autonomous credit items exceeds the value of autonomous debit items.
This Presentation covers major topics in Balance of Payment including Balance of Payment Accounting, Capital Account, Current Account, BOP Equilibrium, BOP Disequilibrium and measures for correction.
Balance of payments Presentation (complete)E Concepts
The presentation covers all important aspects of balance of payments majorly including;
Rules of Balance Of Payments
Balance of payments vs Balance of trade
Debit vs Credit transactions
Equilibrium vs disequilibrium in BOP
Measures to correct disequilibrium
Brief PPT on Balance of payment Vs Balance of TradeShubham Parsekar
The ppt is based on Balance of payment and Balance of trade, their meaning ,factors affecting them and difference between both i.e BOP & BOT.
i hope this presentation will be helpful to you , as everything is tried to fit in these slides. i suggest everyone to just go through the economics text book and gain more insights if one is very much interested in it.
please like the presentation and comment below your views about it.
follow me on slideshare for more informative power point presentations.
This Presentation covers major topics in Balance of Payment including Balance of Payment Accounting, Capital Account, Current Account, BOP Equilibrium, BOP Disequilibrium and measures for correction.
Balance of payments Presentation (complete)E Concepts
The presentation covers all important aspects of balance of payments majorly including;
Rules of Balance Of Payments
Balance of payments vs Balance of trade
Debit vs Credit transactions
Equilibrium vs disequilibrium in BOP
Measures to correct disequilibrium
Brief PPT on Balance of payment Vs Balance of TradeShubham Parsekar
The ppt is based on Balance of payment and Balance of trade, their meaning ,factors affecting them and difference between both i.e BOP & BOT.
i hope this presentation will be helpful to you , as everything is tried to fit in these slides. i suggest everyone to just go through the economics text book and gain more insights if one is very much interested in it.
please like the presentation and comment below your views about it.
follow me on slideshare for more informative power point presentations.
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2. Introduction
Balance of payments (BOP) accounts are an accounting record of all
monetary transactions between a country and the rest of the world.
These transactions include payments for the country's exports and
imports of goods & services, financial capital, and financial transfers.
A country has to deal with other countries in respect of 3 items: Visible items which include all types of physical goods exported and
imported.
Invisible items which include all those services whose export and
import are not visible. e.g. transport services, medical services etc.
Capital transfers which are concerned with capital receipts and
capital payment.
3. Definition-
According to Kindle Berger, "The balance of payments of a
country is a systematic record of all economic transactions
between the residents of the reporting country and residents
of foreign countries during a given period of time".
4. Features
It is a systematic record of all economic transactions
between one country and the rest of the world.
It includes all transactions, visible as well as invisible.
It relates to a period of time. Generally, it is an annual
statement.
It adopts a double-entry book-keeping system. It has two
sides: credit side and debit side. Receipts are recorded on
the credit side and payments on the debit side.
5. Components of BOP
1. Current Account Balance
BOP on current account is a statement of actual receipts
and payments in short period.
It includes the value of export and imports of both visible
and invisible goods. There can be either surplus or deficit
in current account.
The current account includes:- export & import of
services, interests, profits, dividends and unilateral
receipts/payments from/to abroad.
6. 2. Capital Account Balance
It is difference between the receipts and payments on
account of capital account. It refers to all financial
transactions.
The capital account involves inflows and outflows relating to
investments, short term borrowings/lending, and medium
term to long term borrowing/lending.
There can be surplus or deficit in capital account.
It includes: - private foreign loan flow, movement in banking
capital, official capital transactions, reserves, gold
movement etc.
7. 3. Overall BOP -:
Total of a country’s current and capital account is reflected in
overall Balance of payments. It includes errors and omissions
and official reserve transactions.
The errors may be due to statistical discrepancies & omission
may be due to certain transactions may not be recorded.
For e.g.: A remittance by an Indian working abroad to India may
not yet recorded, or a payment of dividend abroad by an MNC
operating in India may not yet recorded or so on.
The errors and omissions amount equals to the amount
necessary to balance both the sides
8. Causes of Disequilibrium
Natural causes – e.g. floods, earthquake etc.
2. Economic causes – e.g. Cyclical Fluctuations, Inflation,
Demonstration Effect etc.
3. Political causes – e.g. international relation, political
instability, etc.
4. Social factors – e.g. change in taste and preferences etc.
1.
9. How to correct the Balance of Payment?
1. Monetary measures –
Deflation - Deflation means falling prices. Deflation has
been used as a measure to correct deficit disequilibrium. A
country faces deficit when its imports exceeds exports.
Deflation is brought through monetary measures like bank
rate policy, open market operations, etc. or through fiscal
measures like higher taxation, reduction in public
expenditure, etc.
Deflation would make our items cheaper in foreign market
resulting a rise in our exports. At the same time the demands
for imports fall due to higher taxation and reduced income.
This would build a favourable atmosphere in the balance of
payment position. However Deflation can be successful
when the exchange rate remains fixed.
10. Exchange Depreciation - Exchange depreciation
means decline in the rate of exchange of
domestic currency in terms of foreign currency.
This device implies that a country has adopted a
flexible exchange rate policy.
Suppose the rate of exchange between Indian
rupee and US dollar is $1 = Rs. 40. If India
experiences an adverse balance of payments
with regard to U.S.A, the Indian demand for US
dollar will rise.
The price of dollar in terms of rupee will rise.
Hence, dollar will appreciate in external value
and rupee will depreciate in external value. The
new rate of exchange may be say $1 = Rs. 50.
This means 25% exchange depreciation of the
11. Devaluation - Devaluation refers to deliberate
attempt made by monetary authorities to bring
down the value of home currency against foreign
currency.
When devaluation is effected, the value of home
currency goes down against foreign currency, Let
us suppose the exchange rate remains $1 = Rs. 10
before devaluation. Let us suppose, devaluation
takes place which reduces the value of home
currency and now the exchange rate becomes $1
= Rs. 20.
After such a change our goods becomes cheap in
foreign market. This is because, after devaluation,
dollar is exchanged for more Indian currencies
12. 2. Non-Monetary Measures –
Export Promotion –
The government can adopt export promotion measures to
correct disequilibrium in the balance of payments. This
includes substitutes, tax concessions to exporters, marketing
facilities, credit and incentives to exporters, etc.
The government may also help to promote export through
exhibition, trade fairs; conducting marketing research & by
providing the required administrative and diplomatic help to
tap the potential markets
13. Quotas –
Under the quota system, the government may fix
and permit the maximum quantity or value of a
commodity to be imported during a given period.
By restricting imports through the quota system,
the deficit is reduced and the balance of
payments position is improved.
Tariffs –
Tariffs are duties (taxes) imposed on imports.
When tariffs are imposed, the prices of imports
would increase to the extent of tariff. The
increased prices will reduced the demand for
14. How to correct the Balance of Payment?
1. Monetary measures –
Deflation
Exchange Depreciation
Devaluation
2. Non-Monetary Measures –
Export Promotion
Quotas
Tariffs
15. This data represent that: Exports of 2006-07 is 128888 and import is 190670
which means that trade balance (BOT) is deficit
means import is greater than exports. It shows that
the BOP of year 2006-07 is unfavourable.
Similarly, export of year 2007-08, 2008-09, 2008-10
is also less than import which means that BOP of
these years also unfavourable. And trade balance is
deficit (import>export)
16. Balance of Trade
The difference between a country's imports and its
exports. Balance of trade is the largest component
of a country's balance of payments.
Debit items include imports, foreign aid, domestic
spending abroad and domestic investments abroad.
Credit items include exports, foreign spending in the
domestic economy and foreign investments in the
domestic economy.
When exports are greater than imports than the
BOT is favourable and if imports are greater than
exports then it is unfavourable
17. BOP vs. BOT
BOP
BOT
1.
It is a broad term.
1.
It is a narrow term.
2.
It includes all transactions related
to visible, invisible and capital
transfers.
2.
It includes only visible items.
3.
It is always balances itself.
3.
It can be favourable or unfavourable.
4.
BOP = Current Account + Capital
Account + or - Balancing item (
Errors and omissions)
4.
BOT = Net Earning on
Export - Net payment for imports.
5.
Following are main factors
which affect BOT
a) cost of production
b) availability of raw materials
c) Exchange rate
d) Prices of goods manufactured at
home
5.
Following are main factors
which
affect
BOP
a) Conditions of foreign lenders.
b) Economic policy of Govt.
c) all the factors of BOT