Balance of Payments: Current Account Capital Account Balancing Account

he Balance of Payments 'BOP' is an account of all transactions between one country
and all other countries--transactions that are measured in terms of receipts and
payments. From the U.S. perspective, a receipt represents any dollars flowing into the
country or any transaction that require the exchange of foreign currency into dollars.
A payment represents dollars flowing out of the country or any transaction that
requires the conversion of dollars into some other currency. The three main
components of the Balance of Payments are:
1. The Current Account including Merchandise (Exports Imports), Investment

income (rents, profits, interest)
2. The Capital Account measuring Foreign investment in the U.S. and
U.S.investment abroad, and
3. The Balancing Account allowing for changes in official reserve assets
(SDR's, Gold, other payments)
+ SUBSCRIBE
What is 'Translation Exposure

Translation exposure is the risk that a company's
equities, assets, liabilities or income will change in
value as a result of exchange rate changes. This
occurs when a firm denominates a portion of its
equities, assets, liabilities or income in a foreign
currency, and it's also known as "accounting
exposure.”Accountants use various methods to
insulate firms from these types of risks, such as
consolidation techniques for the firm's financial
statements and the use of the most effective cost
accountingevaluation procedures, and in many
cases, this exposure will be recorded in financial
statements as an exchange rate gain (or loss).
Translation exposure is most evident in multinational organizations, since a portion of their

operations, and assets, will be based in a foreign currency. It can also affect companies that
produce goods or services that are sold in foreign markets even if they have no other business
dealings within that country.
European Exchange Rate Mechanism (ERM) was a system introduced by

the European Economic Community on 13 March 1979, as part of the European Monetary System (EMS), to
reduce exchange ratevariability and achieve monetary stability in Europe, in preparation for Economic and Monetary
Union and the introduction of a single currency, the euro, which took place on 1 January 1999.
After the adoption of the euro, policy changed to linking currencies of EU countries outside the eurozone to the euro
(having the common currency as a central point). The goal was to improve the stability of those currencies, as well as to
gain an evaluation mechanism for potential eurozone members
DEFINITION of 'Foreign Aid'
Foreign aid is money that one country voluntarily transfers to another, which can take the form of a gift, a grant or a
loan. In the United States, the term usually refers only to military and economic assistance the federal government
gives to other governments. Broader definitions of aid include money transferred across borders by religious
organizations, non-government organizations (NGOs) and foundations. Some have argued that remissions should be
included, but they are rarely assumed to constitute aid.
Financial Market
16
Share
WHAT IT IS:
A financial market is a location where buyers and sellers meet to exchange goods and services at prices determined
by the forces of supply and demand.
A financial market may be a physical location or a virtual one over a network (for example, the Internet). Here, people
who have a specific good or service they want to sell (the supply) interact with people who wish to buy it (the
demand).
Prices in a financial market are determined by changes in supply and demand. If market demand is steady, an
increase in market supply results in a decline in market prices and vice versa. If marketsupply is steady, a rise in
demand results in a rise in market prices and vice versa. These relationships are demonstrated in the following
graphs:
Producers advertise goods and services to consumers in a financial market in order to generate demand. Also,
the term "market" is closely associated with financial assets and securities prices (for example, the stock market or
the bond market).
1.
External Commercial Borrowings

First Published: March 8, 2013 | Last Updated:November 8, 2016
Any money that has been borrowed from foreign sources for financing the commercial activities in India are called External Commercial
Borrowings. The Government of India permits ECBs as a source of finance for Indian Corporates for expansion of existing capacity as
well as for fresh investment.
Foreign Sources
The ECBs are defined as money borrowed from foreign resources including the following:
 Commercial bank loans
 Buyers’ credit and suppliers’ credit
 Securitised instruments such as Floating Rate Notes and Fixed Rate Bonds etc.
 Credit from official export credit agencies and commercial borrowings from the private sector window of Multilateral Financial
Institutions such as International Finance Corporation (Washington), ADB, AFIC, CDC, etc.
Objective of ECB
 Government permits the ECBs as an additional source of financing for expanding the existing capacity as well as for fresh investments.
The ECB policy of the Government seeks to emphasize the priority of investing in the infrastructure and core sectors such as Power,
telecom, Railways, Roads, Urban infrastructure etc.
 There is also emphasis on the need of capital for Small and Medium scale enterprises.
.
international capital market is that financial market or world financial center

where shares, bonds, debentures, currencies, hedge funds, mutual funds and other long term securities are purchased
and sold. International capital market is the group of different country's capital market. They associate with each other with
Internet. They provide the place to international companies and investors to deal in shares and bonds of different
countries.
After invention of computer and Internet and revolution of financial market in 2010, almost all financial markets are
converted in international capital markets. We can give the example of Hong Kong, Singapore and New York world trade
centre. International capital market was started with dealing of foreign exchange. After globalization of financial sector,
companies have to take certificate for dealing in international market. Suppose, Indian company wants to sell shares in
France, for this, Indian company should take certificate named global depository receipt (GDR).
International capital market's daily turnover has crossed $ 5 trillion. International capital market is very helpful for reducing
the risk of small company because in international market, you can buy different countries companies shares, debentures
and mutual funds. Different countries have different business environment, so if any country is facing loss and due to
financial crisis, your investment in that country may suffer losses but you can fulfill this loss from other country's
investment. So, overall risk will be reduced by this technique.
two-way price
Definition
A foreign exchange quote in which both the bid and the offer are shown. A two-way price allows the investor to see how
much can be earned by buying or selling a currency pair with a specific dealer, and is part of the market order process
for trading currencies.

Balance of Payments: Current Account Capital Account Balancing Account

Uploaded by

Copyright:

Available Formats

Balance of Payments: Current Account Capital Account Balancing Account

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Balance of Payments: Current Account Capital Account Balancing Account

Uploaded by

Copyright:

Available Formats

he Balance of Payments 'BOP' is an account of all transactions between one country

1. The Current Account including Merchandise (Exports Imports), Investment

What is 'Translation Exposure

Translation exposure is most evident in multinational organizations, since a portion of their

European Exchange Rate Mechanism (ERM) was a system introduced by

DEFINITION of 'Foreign Aid'

External Commercial Borrowings

 Buyers’ credit and suppliers’ credit

international capital market is that financial market or world financial center

You might also like