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Balance of Payment

The balance of payments is a systematic record of all economic transactions between residents of a country and the rest of the world. It presents receipts from exports, services, and capital inflows, as well as payments for imports, services, and capital outflows. The balance of payments includes the current account, which covers trade in goods and services and transfers, and the capital account, which covers changes in financial assets and liabilities. Maintaining a stable balance of payments is important for determining a currency's exchange rate and confirming trends in a country's international trade.

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78 views10 pages

Balance of Payment

The balance of payments is a systematic record of all economic transactions between residents of a country and the rest of the world. It presents receipts from exports, services, and capital inflows, as well as payments for imports, services, and capital outflows. The balance of payments includes the current account, which covers trade in goods and services and transfers, and the capital account, which covers changes in financial assets and liabilities. Maintaining a stable balance of payments is important for determining a currency's exchange rate and confirming trends in a country's international trade.

Uploaded by

Sangeetha K S
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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IBS B

Balance of payment

01/29/2021
Balance of payment
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 theme on account of goods
imported and services received from the capital transferred to
non-residents or foreigners.- Reserve Bank of India

01/29/2021
Importance of BoP
 BOP records all the transactions that create demand for and
supply of a currency.
 This indicates demand-supply equation of the currency. This can
drive changes in exchange rate of the currency with other
currencies.
 BOP may confirm trend in economy’s international trade and
exchange rate of the currency.
 This may also indicate change or reversal in the trend. This may
indicate policy shift of the monetary authority (RBI) of the country.

01/29/2021
The general rule in BOP accounting

 If a transaction earns foreign currency for the nation, it is a credit


and is recorded as a plus item.
 If a transaction involves spending of foreign currency it is a debit
and is recorded as a negative item.

01/29/2021
Components of a BOP statement

 A.   Current Account
 B.   Capital Account
 C.   IMF
 D.   SDR Allocation
 E.   Errors & Omissions
 F.   Reserves and Monetary Gold

01/29/2021
Current and capital account
Current Account
 BOP on current account refers to the inclusion of three balances of
namely – Merchandise balance, Services balance and Unilateral
Transfer balance.
 It reflects the net flow of goods, services and unilateral transfers (gifts).
 The net value of the balances of visible trade and of invisible trade and
of unilateral transfers defines the balance on current account.
Capital Account
 The capital account records all international transactions that involve a
resident of the country concerned changing either his assets with or his
liabilities to a resident of another country.
 Transactions in the capital account reflect a change in a stock – either
assets or liabilities.

01/29/2021
Reserve account
 Three accounts - IMF, SDR, & Reserve and Monetary Gold are
collectively called as The Reserve Account.
 The IMF account contains purchases (credits) and re-purchase
(debits) from IMF.
 Special Drawing Rights (SDRs) are a reserve asset created by
IMF and allocated from time to time to member countries.
▪ It can be used to settle international payments between
monetary authorities of two different countries.

01/29/2021
BoP and BoT

BOP BOT
 It is a broad item  It is a narrow item
 It includes all transactions  It includes visible items
related to visible, invisible and  It can be favorable or
capital transfers unfavorable
 It is always balances itself  BOT = Net earnings on
 BOP = Current account + exports – net payment for
capital account +/- balancing imports
item (errors and omissions)

01/29/2021
Developments in India’s BoP
First Quarter (April-June) of 2020-21

https
://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=50436
#:~:text=India's%20current%20account%20balance%20(CAB,i.e.
%
20Q1%20of%202019%2D20%5D

https://
data.worldbank.org/indicator/BN.CAB.XOKA.CD?locations=IN

01/29/2021
Thank you

01/29/2021

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