Balance of Payments (Final)

Balance of Payments
Aashima
Apeejay School
Mahavir Marg Jalandhar
Meaning
Balance of Payments (BOP) is the systematic record of all the economic
transactions (visible and invisible items) between residents of one
country and the residents of the rest of the world sector during a given
period of time.
Economic Transactions include:
u Export and Import of visible items (goods)
u Export and Import of invisible items (services)
u Unilateral transfers (gifts, donations etc. i.e. non factor services)
u Capital Movements ( change in asset and liability status)
Balance of Trade (BOT) is the systematic record of all the visible

transactions only between residents of one country and the residents
of the rest of the world sector during a given period of time.
Difference between BOP and BOT
Balance of Trade Balance of Payments

It records only visible (goods) transactions. It records visible and invisible transactions
(both goods and services).
It does not record transactions of capital It records transactions of capital nature.
nature.
It is a part of current account of BOP. It includes both current account and capital
account of BOP.
It may be favourable, unfavourable or in It is always in equilibrium.

equilibrium.
It is not true indicator of economic relations It is true indicator of economic performance
or economic prosperity of a country. of an economy.
Components or Structure of BOP
u BOP on Current Account/ Items above the

line/Autonomous Items
u BOP on Capital Account/Items below the
line/ Accommodating items
BOP on Current Account/ Items above the
line/Autonomous Items
BOP on current account is that account which records
import and export of visible and invisible items and
unilateral transfers during the current year.
It records those transactions which do not cause a
change in asset and liability status of the country. It
includes:
Export and Import of visible items
Export and Import of invisible items
Unilateral transfers (gifts, donations etc. i.e.non factor
services)
BOP on Capital Account/Items below the
line/ Accommodating items
u BOP on capital account records all those transactions
between two or more countries which cause a change in
the asset and liability status of the country.
u The main components of BOP on capital account are:
ü Foreign Investment (FDI, Portfolio Investment)
ü Loans or Borrowings (External Commercial Borrowings and
External Assistance)
ü NRI Deposits
ü Banking Capital(other than NRI Deposits)
ü Short term Trade Credit
ü Changes in Foreign Exchange reserves
Balance of Payments always Balances
u Truebalance of Payments always

balances because
u Any deficit in current account can be
offset with the surplus of capital
account and
u Any surplus in current account can be
adjusted with deficit of capital
account.
Autonomous Items and Accommodating Items of BOP
Basis Autonomous Items Accommodating Items
Meaning/ Autonomous items are those Accommodating items are the

Motive transactions which are done in transactions which are not done in
consideration of profit. consideration of profit.
BOP Autonomous items cause BOP Accommodating items are meant

Identity imbalance ( Surplus BOP or for bringing BOP identity.
Deficit BOP)
Transfer Autonomous items involves Accommodating items involve

transfer of goods and services movement of official reserves from
from the country. the country.
Alternativ Autonomous items are known Accommodating items are known

e Name as above the line items. as below the line items.
Disequilibrium in BOP
u Equilibrium in BOP : Export Earnings are equal
to the Import Payments.
u Disequilibrium in BOP : Export Earnings are not

equal to Import Payments.
It can be
u Surplus BOP (Export Earnings > Import
Payments)
u Deficit BOP (Export Earnings < Import Payments)
Current account deficit offset with surplus capital account
Debit(Outflow of foreign exchange) Amt Rs Crores Credit (Inflow of foreign exchange) Amt Rs Crores
Import of Goods 800 Export of Goods 550
Import of Services 50 Export of Services 150
Unilateral Transfers ( gifts, 80 Unilateral Transfers ( gifts, 100

remittances etc. given to foreigners) remittances etc. received from
foreigners)
Current Account deficit with Rs 130 Crores (930- 800)

Capital payments 70 Capital receipts 200
( lending , purchase of asset in abroad ( Borrowings received from abroad,
etc.) sale of asset to foreigners etc.)
Capital account surplus with Rs 130 Crores ( 200-70)

Total 1000 1000
Current account surplus adjusted with deficit capital account
Debit(Outflow of foreign exchange) Amt Rs Credit (Inflow of foreign exchange) Amt Rs

Crores Crores
Import of Goods 550 Export of Goods 800
Import of Services 150 Export of Services 50
Unilateral Transfers ( gifts, remittances 100 Unilateral Transfers ( gifts, remittances 80

etc. given to foreigners) etc. received from foreigners)
Current Account surplus with Rs 130 Crores (930- 800)

Capital payments 200 Capital receipts 70
( lending , purchase of asset in abroad ( Borrowings received from abroad, sale
etc.) of asset to foreigners etc.)
Capital account deficit with Rs 130 Crores ( 200-70)

Total 1000 1000

Balance of Payments (Final)

Uploaded by

Copyright:

Available Formats

Balance of Payments (Final)

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 (Final)

Uploaded by

Copyright:

Available Formats

Balance of Payments

Balance of Trade (BOT) is the systematic record of all the visible

Balance of Trade Balance of Payments

It may be favourable, unfavourable or in It is always in equilibrium.

u BOP on Current Account/ Items above the

u Truebalance of Payments always

Basis Autonomous Items Accommodating Items

Meaning/ Autonomous items are those Accommodating items are the

BOP Autonomous items cause BOP Accommodating items are meant

Transfer Autonomous items involves Accommodating items involve

Alternativ Autonomous items are known Accommodating items are known

u Disequilibrium in BOP : Export Earnings are not

Import of Goods 800 Export of Goods 550

Import of Services 50 Export of Services 150

Unilateral Transfers ( gifts, 80 Unilateral Transfers ( gifts, 100

Current Account deficit with Rs 130 Crores (930- 800)

Capital account surplus with Rs 130 Crores ( 200-70)

Debit(Outflow of foreign exchange) Amt Rs Credit (Inflow of foreign exchange) Amt Rs

Import of Goods 550 Export of Goods 800

Import of Services 150 Export of Services 50

Unilateral Transfers ( gifts, remittances 100 Unilateral Transfers ( gifts, remittances 80

Current Account surplus with Rs 130 Crores (930- 800)

Capital account deficit with Rs 130 Crores ( 200-70)

You might also like