2. INTRODUCTION OF PAYMENTS
Balance of payments is an extensive terminology and the balance of
trade is just a part of it. In fact, it is a more elaborate term compared to
the balance of trade. The literal meaning of balance of trade is simply
export and import records.
Balance of payment is defined as the collective conclusion made on the
basis of the account of tangible and intangible goods which are
imported and exported by the nation. It helps in giving a complete
report about the entire trade with the foreign countries and depict the
real image of the standing position of the nation in the international
market.
4. ACCORDING TO RESERVE BANK OF INDIA
• The Balance Of Payments Of A Country Is A Systematic Record Of All
Economic Transactions Between The Residents Of A Country And The
Rest Of The World. It Presents A Classified Record Of All Receipts On
Account Of Goods Exported, Services Rendered And Capital Received
By “Residents” And Payments Made By Them On Account Of Goods
Imported And Services Received From The Capital Transferred To Non-
residents Of Foreigners.
5. FEATURES OF BALANCE OF PAYMENTS:
• The main features of balance of payments:
• 1) Systematic record: Balance of payments of a country is a systematic record of the monetary
transactions over a period with the rest of the world.
• 2) Comprehensiveness: Balance of Payments is more comprehensive in scope. It includes visible
items, non-visible items and capital transfers.
• 3) Double entry system: Under double entry system, receipts and payments are recorded for
proper record.
• 4) Self-balanced: Double entry system keeps automatically debit and credit side of the accounts
in balance.
• 5) Adjustment of differences: Whenever there exists difference in actual total receipts and
payments, need is felt for necessary adjustment.
6. Balance of trade:
Countries trade with one another, their exports paying for imports. Balance of trade means balance
of difference between the value of total imports and exports of visible material goods.
According to Benham, "Balance of trade of a country is the relation
over a period between the values of her exports and the values of her
imports". A proper record of all material goods exported and imported is kept at the ports.
Therefore, they are called visible items. In fact, balance of trade is a part of balance of payments. In
practice exports and imports of a country will not be equal. In other words, balance of trade will not
balance during any given period of time. A country may experience a favourable or an adverse
balance of trade. Balance of trade may be of three kinds. They are:
7. THREE KINDS OF BOT
• 1)Favourable balance of trade: A country may have favourable balance of trade
when the total value of the goods exported by it exceeds the total value of the goods imported by
it. Favourable balance of trade is also known as "surplus balance of trade".
• 2) Unfavourable balance of trade: A country may have unfavourable balance of
trade when the total value of the goods imported by it exceeds the total value of the goods
exported by it. It is also known as "deficit balance of trade".
• 3) Equilibrium in balance of trade: A country may have equilibrium in balance of
trade when the total value of goods exported by it is equal to the total value of the goods
imported by it.
10. • Balance of payments accounts are an accounting record of all monetary transactions between the country
and the rest of the world.
• The Bop accounts summarise international transactions for a specific period, usually a year, and are prepared
in a single currency, typically the domestic currency of the country concerned
• Balance of payments is a border term than balance of trade
• The record of balance of payments is based on the concept of double entry book keeping, in which the credit
side shows the receipts of foreign exchange from abroad and the debit side shows payments in foreign
exchange to foreign residents
• In the current account of balance of payments, transactions are classified into merchandise (exports and
imports), invisibles and non-monetary movement of gold.
•Capital account includes capital inflows which can be classified by instrument (debt or equity) and maturity
(short-term or long-term)
• Disequilibrium of deficit arises when the receipts from foreigners fall less than the payments to foreigners
• Disequilibrium of surplus arises when the receipts of the country exceed its payments.
• There are monetary and non-monetary measures to correct the disequilibrium of balance of payments.
SUMMARY
