This document discusses the balance of payments of countries. It defines the balance of payments as a statistical record of a country's international transactions over a period of time. The balance of payments statement includes receipts and payments related to goods, services, capital, and financial flows. It is divided into the current account, which covers trade in goods and services plus net income and transfers, and the capital account, which covers capital transfers and acquisitions/disposals of non-produced non-financial assets. Factors influencing India's balance of payments over time are also briefly discussed.

1. Submitted by:-
Satyanarayana Boda
1st year MFSc
F.E.C – 501
Dept. of F.E.S
Submitted to:-
Dr. S.Sahu
Dr. C. Chakrabarti
9/15/2015
Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

2. • Ancient man – less wants.
• Barter system evolved.
• Unending human wants led to creation of money.
9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

3. Inconveniences of Barter
• Need for Double Coincidence.
• Difficulty of Sub-division.
• Absence of Common Measure of Value
• No store of value, creating the necessity of money.
9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

4. Commodity money, metallic money, paper/ currency
money, finally bank money.
It is anything which is generally accepted in exchange
for other things and which can discharge all
obligations, past and present.
9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

5. SCITOVSKY DEFINITION
• “Money is a difficult concept to define, partly
because it fulfills not one but three functions, each
of them providing a criterion of moneyness … those
of a unit of account, a medium of exchange, and a
store of value.”
9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

6. PROFESSOR COULBORN DEFINITION
• “The means of valuation and of payment;
as both the unit of account and the
generally acceptable medium of exchange.”
9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

7. SIR JOHN HICKS DEFINITION
• “Money is defined by its functions:
anything is money which is used as
money: ‘money is what money does.”
9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

8. The Traditional Definition of Money
• Money is defined as currency and demand
deposits, and it’s most important function is
to act as a medium of exchange.
9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

9. FRIEDMAN’S DEFINITION OF MONEY
• “Literally the number of dollars people are
carrying around in their pockets, the number
of dollars they have to their credit at banks in
the form of demand deposits and commercial
bank time deposits”.
9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

10. THE RADCLIFFE DEFINITION
• Note plus bank deposits
THE GURLEY-SHAW DEFINITION
• Equal to currency plus demand deposits is only
one liquid asset.
9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

11. EVOLUTION OF THE PAYMENTS SYSTEM
• Commodity Money: Gold, Silver, other precious
metals, certain stones, Cigarettes, etc.
• Representative money : That is backed 100 % by
precious metals (bank notes )
• Fiat Money: No consumption or investment use:
intrinsically useless pieces of paper.
• Token money
• Checks
• Electronic Payments: EFTs, wire transfers.
• E-money: Debit cards….
9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

12. Functions of Money
1. Primary functions –
(I) Money as a Medium of Exchange.
(ii) Money as Unit of Value.
2. Secondary Functions –
(i) Money as a Standard of Deferred Payments.
(ii) Money as a Store of Value.
(iii) Money as a Transfer of Value.
9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

13. 3. Contingent Functions.
(i) Money as the Most Liquid of all Liquid Assets.
(ii) Basis of the Credit System:
(iii) Equalizer of Marginal Utilities and Productivities:
(iv) Measurement of National Income:
(v) Distribution of National Income:
4. Other Functions.
(i) Helpful in making decisions.
(ii) Money as a Basis of Adjustment
9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

14. Money versus Barter
• Without money, the only way to do business is by
bartering.
• For barter to work, I must want what you have and
you must want what I have
– This makes it pretty difficult to do business
• “Everything, then, must be assessed in money: for
this enables men always to exchange their services,
and so makes society possible”
– Aristotle, Nicomachean Ethics
9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

15. Characteristics of money
• Durability –
• Portability –
• Divisibility –
• Uniformity –
• Acceptance –
• Malleability –
• Limited supply –
• Stability –
• Acceptability –
9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

16. VALUE OF MONEY
• Quantity of goods that can be exchange with one
unit of money.
Measurements of change in value of money.
1. Deflation – Increasing in purchasing power of
money.
2. Inflation – Decreasing of purchasing power of
money.
3. Index numbers – Number used to denote change in
money value.
9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

17. Index number
• Definition.
• Price index numbers.
Preparation:-
Select base year.
Commodity selection.
Collection of price statistics.
Calculate present price as % of base year.
Take out average of both year prices & present
price.
9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

18. USES OF INDEX NUMBERS.
• Measure quantitative changes in wages, import…
• Indicate social conditions for policy makers.
• Compare conditions of various class of people &
their standard of living.
• It indicates the discharge of borrowings & lendings.
9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

19. INFLATION
• Causes
• Demand induced inflation.
• Cost induced inflation.
• Money induced inflation.
• Remedies.
• Price control.
• Monetary measures.
• Fiscal policy.
9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

20. Balance of Payments
9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

21. INTRODUCTION
• Statistical record of a country’s international
transactions over a certain period of time presented
in the form of double-entry bookkeeping.
• Provides information about supply and demand of
the country’s currency.
• Shows developments in a country’s comparative
advantage and international competitiveness.9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

22. BOP STATEMENT INCLUDES
All the receipts on account of goods exported.
Services rendered.
Capital received by residents.
Payments of residents.
Capital transferred to foreign.
9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

23. • Current account.
• Capital account.
9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

24. • It includes visible imports and exports and invisible
items like receipts payments for various services.
• It contain debit and credit items.
• Credit include merchandise exports and invisible
exports.
• Debit include merchandise imports and invisible
imports.
9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

25. BOP STATUS OF INDIA IN CURRENT ACCOUNT
• Satisfactory five year plan.
• Inflow of foreign capital is 127 cr. And deficit of
current account is 42.3 cr.
• 2nd & 3rd 5yr plans show negative BOP .
• 4th & 5th 5yr plans show positive BOP with 100 cr.
and 3082 cr. respectively.
• From 1985-86 & 1989-90 BOP is negative.
• From 2001-02 to 2004-05 BOP was surplus but
2005-6 it show deficit and again in 2008-09 BOP
was positive..9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

26. • Import liberalization in 1985.
• Gulf war in 1990.
• Industrialization.
• Slow growth of invisibles.
• Depreciation of rupee.
• 1990-91 crisis.
• Less exports.
9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

27. THE CAPITAL ACCOUNT
• Records sales to foreigners of financial assets purchases of
foreign financial assets.
• The capital account is composed of Foreign Direct
Investment (FDI), portfolio investments, and other
investment.
– Direct investment involves acquisitions of controlling
interests in foreign businesses.
– Portfolio investment represents investment in foreign
shares and bonds that do not involve acquisitions of
control.
– Other investment includes bank deposits, currency
investment, trade credit and the like.
9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

28. • Private capital.
• Banking capital.
• Official capital.
Long term loan (>1year).
- Foreign investments.
- Long term loan.
- Foreign currency deposits.
- Unclaimed receipts.
Short term loan (<1year)9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

29. • External financial assets.
• Liabilities of commercial & cooperative banks
authorized to deal in foreign currency.
• RBI’s holdings in case of foreign currency and special
drawings rights..
• Capital outflow to foreign is treated as debit.
• Capital inflow from foreign is treated as credit.
• Credit includes long & short term investment in home
country.
• Debit includes long & short term investment in foreign
country.
9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

30. 9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC

31. 9/15/2015 Dept. of F.E.S, F.F.Sc, W.B.U.A.F.SC