Balance of payment

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Balance of payment

  1. 1. BALANCE OF PAYMENTBALANCE OF PAYMENT ZOHAIB AMAN LASI ( 55904 ) MURTAZA HUSSAIN ( 55718 ) SAFI DAR ( 55730 ) SAJJAD HAIDER ( 56583 )
  2. 2. 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.
  3. 3. Balance of Trade V/s Balance ofBalance of Trade V/s Balance of PaymentPayment 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
  4. 4. 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
  5. 5. TYPES OF BALANCE OFTYPES OF BALANCE OF PAYMENTPAYMENT The Balance of Payments statement comprises four major categories Current Account Capital Account Reserve Accounts Errors & Omissions
  6. 6. Current AccountCurrent 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.
  7. 7. Capital AccountCapital 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.
  8. 8. Reserve AccountsReserve 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
  9. 9. Errors & OmissionsErrors & 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.
  10. 10. IMPORTANCE OF BALANCE OFIMPORTANCE OF BALANCE OF PAYMENTPAYMENT 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
  11. 11. The balance of payments analysis shows:- whether it is paying for its import through exporting goods, drawing down its foreign assests or receiving donations
  12. 12. DISEQUILIBRIUM IN THEDISEQUILIBRIUM IN THE BALANCE OF PAYMENTSBALANCE OF PAYMENTS A disequilibrium in the balance of payment means its condition of Surplus Or deficit
  13. 13. CAUSES OF DISEQUILIBRIUM INCAUSES OF DISEQUILIBRIUM IN THE BOPTHE BOP Cyclical fluctuations Short fall in the exports Economic Development Rapid increase in population Structural Changes Natural Calamites International Capital Movements
  14. 14. MEASURES TO CORRECTMEASURES TO CORRECT ADVERSE BALANCE OF PAYMENTADVERSE 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
  15. 15. MEASURES TO CORRECTMEASURES TO CORRECT ADVERSE BALANCE OF PAYMENTADVERSE BALANCE OF PAYMENT • REDUCTION IN IMPORTS a)Import of Only Essential Items b)Exchange Control c)Substitutes for Imported Items
  16. 16. MEASURES TO CORRECTMEASURES TO CORRECT ADVERSE BALANCE OF PAYMENTADVERSE BALANCE OF PAYMENT MISCELLANEOUS a)Population Control b)Decrease in Consumption c)Control of Smuggling
  17. 17. THANKSTHANKS

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