Balance of Payment(BOP)

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The balance of a payment is a systematic record of all its monetary transections with other countries of the world in a given period of time. i.e 1 year

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Balance of Payment(BOP)

  1. 1. Balance of Payment(BOP)
  2. 2. BALANCE OF PAYMENT Waqas Ahmed Umar Jalil Ali Irfan Shah 10070621-044 10070621-053 10070621-031
  3. 3. 10070621-044 WAQAS AHMED
  4. 4.  The balance of a payment is a systematic record of all its monetary transections with other countries of the world in a given period of time. i.e 1 year  when we say “a country’s balance of payments” we are referring to the transactions of its citizens and government.
  5. 5. Balance of Trade V/s Balance of Payment  The Balance of Payment takes into account all the transaction with the rest of the worlds  The Balance of Trade takes into account all the trade transaction with the rest of the worlds
  6. 6. BCA + BKA + BRA = 0 where BCA = balance on current account BKA = balance on capital account BRA = balance on the reserves account Under a pure flexible exchange rate regime, BCA + BKA = 0
  7. 7. TYPES OF BALANCE OF PAYMENT  The Balance of Payments statement comprises four major categories  Current Account  Capital Account  Reserve Accounts  Errors & Omissions
  8. 8. Current Account  Includes all imports and exports of goods and services.  Includes unilateral transfers of foreign aid.  If the debits exceed the credits, then a country is running a trade deficit.  If the credits exceed the debits, then a country is running a trade surplus.
  9. 9. Capital Account  on receipts side, short term and long-term capital inflow receipts of foreign direct investment and foreign debts are posted  Same items are written in payment side while making payment.
  10. 10. 10070621-053 UMAR JALIL
  11. 11. Reserve Accounts  It shows the foreign exchange position of a country  Official reserve account has the records of foreign official holding and increase reserves of gold and foreign currencies
  12. 12. Errors & Omissions  The entries under this head relate mainly to leads and lags in reporting of transactions  It is of a balancing entry and is needed to offset the overstated or understated components.
  13. 13. IMPORTANCE OF BALANCE OF PAYMENT  It helps  1) State of International economic relationship of country  2) A guide to its monetary.fiscal.exchange & other polices.  3) Inform govt about the international economic position of the country, to assist in reaching decissions on the monetary and fiscal polices
  14. 14.  The balance of payments analysis shows:- whether it is paying for its import through exporting goods, drawing down its foreign assests or receiving donations
  15. 15. DISEQUILIBRIUM IN THE BALANCE OF PAYMENTS Types of BOP Disequilibrium:  There are three main types of BOP Disequilibrium which are discussed below:     Cyclical Disequilibrium,     Secular Disequilibrium,     Structural Disequilibrium.
  16. 16. General Measures to Correct BOP Disequilibrium To correct the different types of disequilibrium in BOP the following general measures are used: Exchange depreciation (price effect) or devaluation (by government) Deflate the currency Tariffs Import quotas Export duties
  17. 17. 10070621-031 ALI IRFAN SHAH
  18. 18. CAUSES OF DISEQUILIBRIUM IN THE BOP  Cyclical fluctuations  Short fall in the exports  Economic Development  Rapid increase in population  Structural Changes  Natural Calamites  International Capital Movements
  19. 19. MEASURES TO CORRECT ADVERSE BALANCE OF PAYMENT  EXPORT LED GROWTH a) Instead Of exporting Raw material should export Finished Goods b) Reduction in Export Duties c) Export Quality Products
  20. 20. MEASURES TO CORRECT ADVERSE BALANCE OF PAYMENT • REDUCTION IN IMPORTS a) Import of Only Essential Items b) Exchange Control c) Substitutes for Imported Items
  21. 21. MEASURES TO CORRECT ADVERSE BALANCE OF PAYMENT  MISCELLANEOUS a) Population b) Decrease c) Control Control in Consumption of Smuggling
  22. 22. THANKS

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