Date post: | 15-Nov-2014 |
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BALANCE OF PAYMENTOF ACCOUNTING SYSTEM
BOP
AMIRAH,UITM
WHAT IS BOP?O Transactions include payments for the
country's exports and imports of goods, services, financial capital, and financial transfers.
O Double-entry booking system (debit & credit)
O surplus / deficit O Supplies vital information - national
economy & likely changes in its fiscal & monetary policy
O Highlight a country's competitive strengths and weaknesses
O Achieving balanced economic- growth.
Why is BOP important to international businesspeople
O BOP statistics help identify emerging market for good and services
O They can warn of possible new policies that may alter a country’s business climate, thereby affecting the probability of a firm’s operation in that country.
O They can indicate reduction in a country’s foreign reserve, which may mean that a country’s currency will depreciate in the future.
O They can signal increased in the risk of lending to a particular country.
BALANCE OF PAYMENT
The BOP accounting system can be divided conceptually into 4 major account,which is:
CURRENT ACCOUNT
CAPITAL ACCOUNT
OFFICIAL RESERVE ACCOUNT
ERROR AND OMISSION ACCOUNT
CURRENT ACCOUNT
EXPORT AND IMPORT OF
MERCHANDISE
EXPORT AND IMPORT OF SERVICE
INCOME ON INVESTMENT
GIFT/ UNILATERAL TRANSFERS
EXPORT AND IMPORT OF MERCHANDISE
The first item record the exports and imports of merchandise or goods.The difference between a country exports and import of goods is called THE BALANCE OF MERCHANDISE TRADE.
If IMPORTS of merchandise is more than its country EXPORTS TRADE DEFICIT
If EXPORT of merchandise is more than its country IMPORTS TRADE SURPLUS
EXPORT AND IMPORT OF SERVICE
The second items record the sale(exports) and purchase(imports) of service to and from another country.The term TRADE IN INVISIBLES is also used to describe trade in services.
The difference between a country ‘s export of services and its import of services is called THE BALANCE ON SERVICE TRADE
INCOME ON INVESTMENT
The third item is income Malaysian residents earn from their foreign investment.This income is viewed as AN EXPORT OF THE SERVICE OF CAPITAL by Malaysian.Income earned by foreigners from their investment in Malaysia is known as AN IMPORT OF THE SERVICES OF CAPITAL by Malaysia.
GIFT/ UNILATERAL TRANSFERS
These are gift between residents of one country and another country.
CAPITAL ACCOUNT
FOREIGN DIRECT INVESTMENT
PORTFOLIO INVESTMENT
SHORT TERM
LONG TERM
FOREIGN DIRECT INVESTMENT
FDI is any investment made for the purpose of controlling the organization in which the investment is made.It
records the net balance of capital that flows out of and into the country for the purpose of exerting control over
assets.
PORTFOLIO INVESTMENT
Portfolio investment is any investment made for purpose other than control or ownership of assets.It is capital that is invested in activities that are purely profit-motivated(return) than ones made in the prospect of controlling or managing or directing the investment.It include:
SHORT TERM PORTFOLIO INVESTMENT-These are financial instrument such as shares,debt securities,treasury bills or bonds with maturity of 1 year or less.
LONG TERM PORTFOLIO INVESTMENT-These are stocks,bond,bank loans and other financial instrument issued by private and public organization that have maturity greater than 1 year and that are held for purpose other than control.
CAPITAL ACCOUNT TRANSACTIONS
MATURITY MOTIVATION TYPICAL INVESTMENT
PORTFOLIO(short term)
1 year or less Investment income or facilitation of international commerce
Checking acc balancesTime depositsCommercial paperBank loans
PORTFOLIO(long term)
More than 1 year
Investment income
Gov bills,notes,&bondCorporate stocks &bond
FOREIGN DIRECT INVESTMENT
inderterminate Active control of organization(own at least 10% of voting stock)
Foreign subsidiariesForeign factoriesInternational joint ventures
Official Reserves Account
-Records the level of official reserves held by a national government . -Used to intervene in the foreign-exchange market and in transactions with other central banks .-Four types : Gold
Convertible currencies
Special Drawing Rights
Reserve positions at the IMF
Errors And Omissions Account
O The fact of the BOP accounting system is that the BOP must balance .
O Equation : current acc + capital acc + errors & omissions + official reserves acc = 0
O Large portion of the errors and omissions is probably due to under reporting of capital account transactions .
O Sometimes , errors and omissions due to deliberate actions and frequently illegal such as drug smuggling , money laundering .
O Other are related to the current account particularly merchandise exports and trade in services .
Defining BOP Surpluses and Deficits
BOP
Current account
Trade Surplu
s = Export
s > Import
s
Trade Deficit
s =Exports <
Imports
Capital Account
Inflow Outflow
Official Settlements
Balance
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