BOP structure


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BOP structure

  1. 1. Balance of Payments Structure of BOP
  2. 2. The Equation <ul><li>Balance on the Current Account </li></ul><ul><li>= </li></ul><ul><li>Balance on the Capital and Financial Account </li></ul>
  3. 3. The Current Account <ul><li>The Current Account is used to collect together the value of: </li></ul><ul><li>Net goods </li></ul><ul><li>Net services </li></ul><ul><li>(Balance on goods and services) </li></ul><ul><li>Net Primary Income </li></ul><ul><li>Net Secondary Income (Current Transfers) </li></ul>
  4. 4. Net Goods <ul><li>NET Goods = Exports of Goods - Imports of Goods </li></ul>
  5. 5. Net Services <ul><li>Net Services = Exports of Services - Imports of Services </li></ul>
  6. 6. Net Primary Income <ul><li>Net Primary Income = Income Credits - Income Debits </li></ul><ul><li>Interest received from foreign firms. </li></ul><ul><li>Profits of Australian firms earned offshore; </li></ul><ul><ul><li>Dividends </li></ul></ul><ul><ul><li>Undistributed profits </li></ul></ul><ul><li>Payments to offshore employees </li></ul><ul><li>Interest paid to foreign firms. </li></ul><ul><li>Profits of foreign firms in Australia; </li></ul><ul><ul><li>Dividends </li></ul></ul><ul><ul><li>Undistributed profits </li></ul></ul><ul><li>Payments to offshore employees </li></ul>Credits Debits
  7. 7. Net Secondary Income <ul><li>Net Secondary Income = Secondary Income Credits - Secondary Income Debits </li></ul><ul><li>Secondary Income (current transfers) or non-commercial payments which could be thought as gifts in the form of: </li></ul><ul><ul><li>Worker remittances to overseas people or to Australian </li></ul></ul><ul><ul><li>Foreign aid (non-conditional (tied) aid) </li></ul></ul><ul><ul><li>Gifts to charities </li></ul></ul><ul><li>Until September 2009 this was known as Current Transfers </li></ul>
  8. 8. The Capital Account <ul><li>Capital Transfers </li></ul><ul><li>Capital Transfers is made up of two parts. </li></ul><ul><li>Capital Transfers in the form of “Conditional” or “Tied” foreign aid. </li></ul><ul><li>Purchase and sale of non-produced, non-financial assets. </li></ul>
  9. 9. Financial Account <ul><li>The Financial Account is made up of: </li></ul><ul><li>Direct Investment </li></ul><ul><li>Portfolio Investment </li></ul><ul><li>Financial Derivatives </li></ul><ul><li>Other Investments </li></ul><ul><li>Reserve Assets </li></ul>
  10. 10. Direct Investment <ul><li>Which includes equity funds (gaining ownership rights) or debts funds (loans). Direct investment can be made by both Australians buying assets abroad or lending to firms offshore which they control or by foreigners buying assets in Australia or lending to firms in Australia which they control. </li></ul>
  11. 11. Portfolio Investment <ul><li>Commercial deals involving savings movements across national borders into assets which do not give the provider of the savings significant control of the user of these savings, e.g. </li></ul><ul><ul><ul><li>Equity securities (Shares) </li></ul></ul></ul><ul><ul><ul><li>Debt securities (T-Bonds, T-Notes, Debentures) </li></ul></ul></ul>
  12. 12. Financial Derivatives <ul><li>Financial derivatives such as interest rate swaps, futures and options. </li></ul>
  13. 13. Other Investments <ul><li>Commercial deals involving savings that are not based on securities or do not give significant control or involve affiliated companies, The main types of other investments are: </li></ul><ul><ul><ul><li>Trade Credit </li></ul></ul></ul><ul><ul><ul><li>Loans made to intermediaries </li></ul></ul></ul><ul><ul><ul><li>Currency and deposits </li></ul></ul></ul>
  14. 14. Reserve Assets <ul><li>Reserve assets are offshore holdings of mainly foreign currencies that the RBA may have either on deposit with overseas ADIs. These may include </li></ul><ul><ul><ul><li>Gold holdings </li></ul></ul></ul><ul><ul><ul><li>Special drawing rights </li></ul></ul></ul><ul><ul><ul><li>The reserve position at the IMF </li></ul></ul></ul>
  15. 15. Calculating the Balance on Capital and Financial Account Capital Transfer credits - Capital transfer debits = Balance on Capital Account Net Direct Investment inflow + Net Portfolio Investment inflow + Net Other Investment Inflow + Net Change in Reserve Assets = Net Financial Inflow or Financial Balance Balance on Capital Account + Financial Account Balance = Balance on Capital and Financial Account