BALANCE OF PAYMENT (BoP)

 

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BALANCE OF PAYMENT
(BoP)
 
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Balance of Payment (BoP)
 
Balance of payment account of a country is an accounting record of all financial transactions made between the residents of the country and residents of foreign countries in a particular period of time (transactions are made by individuals, firms, government).
 
Deal with other country in respect of three 3 items:
 
1. Visible items (All type of physical goods exported and imported)
 
2. Invisible items (all services whose export and import are not visible eg. Transportation, medical)
 
3. Capital transfer ( capital receipts and capital payments)
 
 
Features: 
  • Quantitative summary of countries international transaction
  • Includes visible as well as invisible transactions
  • Relates to a particular period of time
  • It adopts double entry book keeping system. (cr (receipt )and dr. (payment) side)
 
Components of BoP (Account is divided into 2)
 
 
    CURRENT ACCOUNT:
  • Record of actual receipts and payment
  • Records the value of export and import of both visible and invisible goods
  • There can either be surplus or deficit
  • Current account transactions include:
 
    * All import and exports of goods
    * Import and export of services
    * Private remittances (to & fro)
    * Govt. grants (both way) etc.
 
 
The capital account:
  • Involves inflow and outflow of cash relating to investment, short term borrowings/lending and medium term to long term borrowings/lending.
  • Surplus or deficit

  • It includes:
 
    *Direct foreign investments (both inward and outward) 
    * Investments in securities “ 
    * Govt. loans etc


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