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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.
* 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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