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BBaallaannccee ooff ppaayymmeenntt 
Bahram Nawabi 2012UCE1790
CONTENTS 
What is the balance of 
payments. 
Classification of (BOP). 
Gold standard. 
SDR. 
International liquidity.
BOP 
What Is TThhee BBaallaannccee OOff PPaayymmeennttss?? 
Countries track money coming in and going 
out through something called the balance of 
payments. 
The balance of payments (BOP) is the 
method countries use to monitor all 
international monetary transactions at a 
specific period of time. Usually, the BOP is 
calculated every quarter and every calendar 
year.
BOP 
All trades conducted by both the private and 
public sectors are accounted for in the BOP in 
order to determine how much money is going 
in and out of a country. If a country has 
received money, this is known as a credit, 
and, if a country has paid or given money, the 
transaction is counted as a debit.
BOP 
Theoretically, the BOP should be zero, 
meaning that assets (credits) and liabilities 
(debits) should balance. But in practice this is 
rarely the case and, thus, the BOP can tell the 
observer if a country has a deficit or a surplus 
and from which part of the economy the 
discrepancies are stemming.
Divided into.. 
Current account 
Capital account 
financial account
Current A/c 
The Current Account 
The current account is used to mark the 
inflow and outflow of goods and services into 
a country. Earnings on investments, both 
public and private, are also put into the 
current account.
Current A/c 
….Within the current account are credits and 
debits on the trade of merchandise, which 
includes goods such as raw materials and 
manufactured goods that are bought, sold or 
given away (possibly in the form of aid). 
Services refer to receipts from tourism, 
transportation (like the levy that must be paid in 
Egypt when a ship passes through the Suez 
Canal), engineering, business service fees 
(from lawyers or management consulting, for 
example)
Current A/c Transactions 
Merchandise Export fob 
Merchandise Import fob 
Export of a non-financial service 
Investment Income: Export of a financial 
service 
An unrequited Transfer
Capital A/c 
The Capital Account 
The capital account is where all international 
capital transfers are recorded. This refers to 
the acquisition or disposal of non-financial 
assets (for example, a physical asset such as 
land) and non-produced assets, which are 
needed for production but have not been 
produced, like a mine used for the extraction 
of diamonds.
Capital A/c Transactions 
A reserve transaction with a non-resident 
A reserve transaction with a resident
Financial account 
In the financial account, international 
monetary flows related to investment in 
business, real estate, bonds and stocks are 
documented. 
Also included are government-owned assets 
such as foreign reserves, gold, special 
drawing rights (SDRs) held with the 
International Monetary Fund, private assets 
held abroad, and direct foreign investment. 
Assets owned by foreigners, private and 
official, are also recorded in the financial 
account.
Gold standard 
Definition: 
A commitment by participating countries to fix 
the prices of their domestic currencies in 
terms of a specified amount of gold. National 
money and other forms of money(bank 
deposits & notes) were freely converted into 
gold at the fixed price.
Advantages 
During war time emergencies govt. 
emphasizes on purchasing gold standard 
which would be helpful in post-war deflations. 
The gold standard limits the power of govt. to 
inflate prices through excessive issuance of 
paper currency.
Disadvantages 
Gold standard means amount of money 
would be determined by supply of gold & 
hence monetary policy could no longer be 
used to stabilize the economy in times of 
economic recessions. 
Monetary policy be determined by the rate of 
gold production. Fluctuation in the amount of 
gold that causes inflation if there is an 
increase or deflation if there is a decrease.
SDR 
Special Drawing Rights are defined in terms 
of a basket of major currencies used in 
international trade & finance. 
Why was the SDR created:- 
The SDR was created by the IMF in 1969 to 
support the Bretton Woods fixed exchange 
rate system.
Purpose 
SDRs are used as a unit of account by the 
IMF & several other international 
organization. 
SDRs were originally created to replace gold 
& silver in large international transactions.
Bretton Woods system 
The Bretton Woods system of monetary 
management established the rules for 
commercial and financial relations among the 
world's major industrial states in the mid-20th 
century.
International liquidity 
International Liquidity meant the relative 
amount of resources available to a nation’s 
monetary authorities that could be used to 
settle a balance of payment deficit.
Thanks you!

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Balance of payments

  • 1. BBaallaannccee ooff ppaayymmeenntt Bahram Nawabi 2012UCE1790
  • 2. CONTENTS What is the balance of payments. Classification of (BOP). Gold standard. SDR. International liquidity.
  • 3. BOP What Is TThhee BBaallaannccee OOff PPaayymmeennttss?? Countries track money coming in and going out through something called the balance of payments. The balance of payments (BOP) is the method countries use to monitor all international monetary transactions at a specific period of time. Usually, the BOP is calculated every quarter and every calendar year.
  • 4. BOP All trades conducted by both the private and public sectors are accounted for in the BOP in order to determine how much money is going in and out of a country. If a country has received money, this is known as a credit, and, if a country has paid or given money, the transaction is counted as a debit.
  • 5. BOP Theoretically, the BOP should be zero, meaning that assets (credits) and liabilities (debits) should balance. But in practice this is rarely the case and, thus, the BOP can tell the observer if a country has a deficit or a surplus and from which part of the economy the discrepancies are stemming.
  • 6. Divided into.. Current account Capital account financial account
  • 7. Current A/c The Current Account The current account is used to mark the inflow and outflow of goods and services into a country. Earnings on investments, both public and private, are also put into the current account.
  • 8. Current A/c ….Within the current account are credits and debits on the trade of merchandise, which includes goods such as raw materials and manufactured goods that are bought, sold or given away (possibly in the form of aid). Services refer to receipts from tourism, transportation (like the levy that must be paid in Egypt when a ship passes through the Suez Canal), engineering, business service fees (from lawyers or management consulting, for example)
  • 9. Current A/c Transactions Merchandise Export fob Merchandise Import fob Export of a non-financial service Investment Income: Export of a financial service An unrequited Transfer
  • 10. Capital A/c The Capital Account The capital account is where all international capital transfers are recorded. This refers to the acquisition or disposal of non-financial assets (for example, a physical asset such as land) and non-produced assets, which are needed for production but have not been produced, like a mine used for the extraction of diamonds.
  • 11. Capital A/c Transactions A reserve transaction with a non-resident A reserve transaction with a resident
  • 12. Financial account In the financial account, international monetary flows related to investment in business, real estate, bonds and stocks are documented. Also included are government-owned assets such as foreign reserves, gold, special drawing rights (SDRs) held with the International Monetary Fund, private assets held abroad, and direct foreign investment. Assets owned by foreigners, private and official, are also recorded in the financial account.
  • 13. Gold standard Definition: A commitment by participating countries to fix the prices of their domestic currencies in terms of a specified amount of gold. National money and other forms of money(bank deposits & notes) were freely converted into gold at the fixed price.
  • 14. Advantages During war time emergencies govt. emphasizes on purchasing gold standard which would be helpful in post-war deflations. The gold standard limits the power of govt. to inflate prices through excessive issuance of paper currency.
  • 15. Disadvantages Gold standard means amount of money would be determined by supply of gold & hence monetary policy could no longer be used to stabilize the economy in times of economic recessions. Monetary policy be determined by the rate of gold production. Fluctuation in the amount of gold that causes inflation if there is an increase or deflation if there is a decrease.
  • 16. SDR Special Drawing Rights are defined in terms of a basket of major currencies used in international trade & finance. Why was the SDR created:- The SDR was created by the IMF in 1969 to support the Bretton Woods fixed exchange rate system.
  • 17. Purpose SDRs are used as a unit of account by the IMF & several other international organization. SDRs were originally created to replace gold & silver in large international transactions.
  • 18. Bretton Woods system The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states in the mid-20th century.
  • 19. International liquidity International Liquidity meant the relative amount of resources available to a nation’s monetary authorities that could be used to settle a balance of payment deficit.