Fool n Final Bop

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Balance of PaymentsPresenters: Khushmat Jain

Amey Joshi

Chetan Pawar

Rakesh Gangurde

Ujjwal Mestry



Balance of paymentBalance of payment



DefinitionDefinition

A Balance of Payment account is a statement of

double entry system of record of all economic

transactions (involving foreign payments)

between residents of a country and the rest of

the world carried out in specific period of time.



Purp ose Of Balance Purp ose Of Balance

Of P ayment Of P ayment Provides data for economic analysis

Reveals changes in the composition & magnitude

of foreign tradeProvides indications of future repercussions of

country¶s past trade performances

Reveals the weak and strong points of a country¶s

foreign trade relations



Importance of BOP

The BOP of the country help us to understand

that how we are financing our imports

BOP also helps us to understand the direction of our exports as well as imports

It also helps us the monetary authority of the

country to formulate macro economics policye.g.:- monetary policy, fiscal policy, exim policy

It also help us to compare our performance with

that of other countries



Characterstics of BOP

BOP is always balanced

It is only an estimate because there are always

errors & omissions & sources from each relevant

data collected always vary

It is prepared for 1 financial year

It is a systematic record ( Double entry book

keeping accounting principles are followed



Balance of T rade Balance of T rade

Definition:Difference between value of exports and

imports of visible items only

BOT BOP

� Records only merchandise

transactions

� Does not record transactions of

capital nature

� A part of current account of BOP

�Records transactions relating to both

goods and services

� Records transaction of capital nature

� Includes BOT , Balance of services ,

Balance Of Unrequited Transfers and

Balance Of Capital Transactions.





CURRENT ACCOUNT CURRENT ACCOUNT

All transactions relating to goods, services and

unrequited transfers constitute current account

Flow of items pertaining to specific period of time

Visible items include goods

Invisible items include services



CAPI TAL ACCOUNT CAPI TAL ACCOUNT

All transactions indicating changes in stock magnitudes

concerning capital receipts and payments constitute capital account

Relates to

- Borrowing

- Capital repayment

- Sale of assets

- Change in stock of gold- Change in reserve of foreign currency



D I FFERENCE BETWEEN CURRENT D I FFERENCE BETWEEN CURRENT

ACCOUNT AND CAPI TAL ACCOUNT ACCOUNT AND CAPI TAL ACCOUNT

CURRENT ACCOUNT CAPITAL ACCOUNT

� Indicates flow aspect of country¶s national

transactions

� Relates to goods , services

and unrequited transfers

� Indicates changes in stock magnitudes

� Relates to all transactions

constituting debts and transfer

of ownership



STRUCTURE OF BALANCE OF STRUCTURE OF BALANCE OF

P AYMENTS ACCOUNT P AYMENTS ACCOUNT

CREDITS DEBITS

CurrentA/c:

�Exports of goods(Visible items)

�Exports of services (Invisibles)

�Unrequited receipts(gifts , remittances,

indemnities,

etc. form foreigners)

CapitalA/c:

�Capital receipts (Borrowings from

abroad , capital repayments by , or saleof assets to foreigners, increase in stock

of gold and reserves of foreign currency

etc.)

CurrentA/c:

�Imports of goods(Visible items)

�Imports of services(Invisibles)

�Unrequited payments( gifts, remittance,

indemnities etc. to foreigners)

CapitalA/c:

�Capital payments (lending to , capital

repayments to , or purchase of assets

from foreigners, reduction in stock of gold and reserves of foreign currency

etc.)

Total Receipts Total Payments



An Examp le An Examp le

Let us consider the following hypothetical situation:

Export of goods Rs. 550 Crore

Import of goods Rs. 650 CroreExport of services Rs. 150 Crore

Import of services Rs. 70 Crore

Unrequited receipts Rs. 100 Crore

Unrequited payments Rs. 80 Crore

Capital receipts Rs. 200 Crore

Capital payments Rs. 200 Crore.



Balance Of P ayment

Acco u nt

Credits

Current A/c:

1)Export of goods 550

2)Export of services 1503)Unrequited receipts 100

Capital A/c:

1)Capital receipts 200

Total receipts 1000

Debits

Current A/c:

1)Import of goods 650

2)Import of services 703)Unrequited payments 80

Capital A/c:

1)Capital payments 200

Total payments 1000



Diseq u ilib ri u mDiseq u ilib ri u m

Total receipts and total payments inequality

shows disequilibrium of balance of payments

account

Total receipt and payment arising from

autonomous transactions determine the deficit or

surplus in the balance of payments

If payments>receipts, BOP shows Deficit

If payments<receipts, BOP shows Surplus



NET ERRORS AND OMISSIONS

This is the last component of the balance of

payments and principally exists to correct any

possible errors made in accounting for the threeother accounts

They are often referred to as "balancing items".



Official international reserves

The official international reserve account

records the change in stock of official

international reserve assets (also known as

foreign exchange reserves) at the country'smonetary authority .

Official reserves assets include gold reserves,

foreign currencies, SDRs, reserve positions in

the IMF.

{SpecialDrawing Rights (SDRs) are potential

claims on the freely usable currencies of IMF

members.}



BASIC BALANCE

It is the sum of current account and capital

account, when credit in current and capital

account together are equal to debits in currentand capital accounts, then the basic balance is

achieved

Basic Balance= Current A/c + Capital A/c



OVER ALL BALANCE

It is the sum of current account, capital account

and errors and emissions

Overall balance = basic balance + errors &

emissions



³BOP always balance´

Yes

No



Thanks you!

Date post:	07-Apr-2018
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