The document defines the balance of payments as a systematic record of all economic transactions between residents of a country and residents of foreign countries, including goods, services, and capital flows. It notes there are three pillars - it is a systematic record, covers economic transactions between specific parties over a specific time period. The main accounts included in the balance of payments are the current account (covering visible and invisible items) and the capital account. The current account includes trade in goods and services as well as income and transfers. The capital account includes investment, loans, and the foreign exchange reserves held by the central bank. A country has a favorable balance if exports and outbound capital transfers exceed imports and inbound capital transfers.

1. By- Deepak Kothari
Neeraj Shukla
Prakhar Mishra
Prateek Gupta

2. Balance Of Payment
 Definition
According to Kindleberger “The Balance Of
Payment of a country is a systematic record of all
economic transactions concerning goods, services and
capital flow between its residents and residents of
foreign country.”

3. 3 Pillars of BOP
Systematic
Records
Economic
Transaction
Specific
Time
Period

4. Systematic Record
 Prepared by the central banks of each countries
 As per the format of IMF manual “BMP6”
 All amount must be expressed in dollars

5. Economic Transaction Specific Time Period
 Here there must be
specifically two parties
present
 One is resident of that
particular nation
 Other is resident of foreign
nation
 Here the recorded
transaction must be of one
year or so
 And it must be defined

6. Items dealing in Balance of
Payment
A. Visible Items- all types of physical goods
importable and exportable are known as visible
goods
B. Invisible Items- all services,incomes and transfers
are classified under invisible items
C. Capital Items- items consisting of capital reciepts
and capital payments as capital transfers.

7. Accounts of Balance of Payments
Current Account Capital Account
Foreign Exchange
Reserve

8. Current Account
Visible
• Goods or
Tangible
Assets
Invisible
• Services
• Income
• Transfers

9. Capital Account
Investments
Fdi & fii
Loan
Banking
FCNR

10. Foreign Reserve Account
 The Foreign reserves account, which is part of the
Capital account, is the foreign currency held by central
banks, and is used to pay balance-of-payment deficits.

11. Types Of Balance Of Payments
Favourable Balance of
Payments
Unfavourable Balance of
Payment
 Here excess of goods and
services exported and capital
transferred to abroad over
the goods and services
imported and capital
transferred from abroad
 Currency value appreciates in
respect to other nation
 Here excess of goods and
services imported and capital
transferred from abroad over
the goods and services
exported and capital
transferred to abroad
 Currency value depreciates in
respect to other nation

13. Financial
Market
Money
Market
Capital
Market

14. Money
Market
Treasury Bills
Certificate
Of Deposit
Commercial
Bills
Money
market
Contracts
Discount and
financial
houses

15. Capital Markets
 Capital market is a market where buyers and
sellers engage in trade of financial securities
like bonds, stocks, etc. The buying/selling is
undertaken by participants such as
individuals and institutions
 Capital markets are regulated by Central
Banks of respective country.

16. Capital market
Primary Market
Secondary
Market

17. Primary Market
 It is a market where for the first time a security is
being introduced to investors
 It is a place where the companies visits first
in need of funds in return of ownership of company

18. Secondary markets
 The secondary market commonly referred to as
the stock market.
 Here the stock of listed companies trade
 Companies are dependant on these as one of their
source of capital

19. Essentials of capital market
 Mobility of savings
 Channelising of funds
 Industrial development
 Technical assistance
 Encourage investors to invest in industrial security