Balance of Payment

V/s Balance of Trade

Mohit

Karan

Shubham Parsekar

Atul

Teja .M

Wendell

TEAM

A Balance of Payment Account is a systematic record of all economic transactions between residents of a country and the rest of the world carried out in a specific period of time.

Meaning of Balance of Payment Account:

It is a systematic record of all economic transactions between one country and the rest of the world.

It includes all transactions, visible as well as invisible.

It relates to a period of time. Generally, it is an annual statement.

It adopts a double-entry book-keeping system. It has two sides: credit side and debit side. Receipts are recorded on the credit side and payments on the debit side.

Features of Balance of Payment Account:

1. Current Account Balance 2. Capital Account Balance and other minor components like errors and Omissions and

changes in Foreign Exchange Reserves

Current Account

Transactions

Merchandise

Transportation, Insurance, Miscellaneous

Incomes Transfers

Components of Balance of Payment Account:

Under Capital Account, capital inflows can be classified by instrument (debt or equity) and maturity (short or long-term).

Capital Account

Foreign Investments

Loans Banking Capital

FDI, FIIs, ADRs/GDRs

Commercial borrowing, trade

creditNRI Deposits

Capital Account:

Disequilibrium

Debit exceeds Credit or Credit exceeds Debit causing an imbalance in the BOP a/c

Deficit: Our Receipts from foreigners fall below our payment to foreigners. (Unfavourable)

Surplus: Receipts exceeds its Payment (Favourable)

CausesEconomic FactorsImbalance between export & ImportNew Source of supply & new substitutesHigh Domestic Price

Political FactorsInstability & Disturbance cause large capital outflow.

Social FactorsPopulation GrowthChange in fashion

Monetary measuresNon – monetary measures

I. Monetary measures. Deflation Devaluation of currency Exchange control Increase in Direct and Indirect Tax

II. Non Monetary measures 1.Export promotion 2. Import substitution 3.Quota

STEPS TO CORRECT BOP DEFICIT

The difference between a country's imports and its exports. Balance of trade is the largest component of a country's balance of payments.

The items which include imports, foreign aid, domestic spending abroad and domestic investments abroad comes under imports

The items which include exports, foreign spending in the domestic economy and foreign investments in the domestic economy comes under exports

When exports are greater than imports than the BOT is favorable and if imports are greater than exports then it is unfavorable.

Favourable balance of trade indicates the good economic condition of the country.

Balance of Trade

Cost of Production Cost and Availability of Raw materialsExchange Rate movementsNon-Tariff barriers such as environmental, health or

safety standards.

Factors Influencing Balance of Trade:

BASIS OF COMPARISON BALANCE OF TRADE BALANCE OF PAYMENT

Meaning Balance of Trade is a statement that captures the country's export and import of goods with the remaining world.

Balance of Payment is a statement that keeps track of all economic transactions done by the country with the remaining world.

Records Transactions related to goods only. Transactions related to both goods and services are recorded.

Capital Transfers Are not included in the Balance of Trade. Are included in Balance of Payment.

Which is better? It gives a partial view of the country's economic status.

It gives a clear view of the economic position of the country.

Result It can be Favorable, Unfavorable or balanced.

Both the receipts and payment sides tallies.

Component It is a component of Current Account of Balance of Payment.

Current Account and Capital Account.

Thank You