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Definition: The balance of payments is the record of all international financial transactions made

by a country's residents. A country's balance of payments tells you whether it saves enough to
pay for its imports. It also reveals whether the country produces enough economic output to pay
for its growth. The BOP is reported for a quarter or a year.

A balance of payments deficit means the country imports more goods, services and capital than
it exports. It must borrow from other countries to pay for its imports. In the short-term, that fuels
the country's economic growth. It's like taking out a school loan to pay for education. Your
expected higher future salary is worth the investment.

In the long-term, the country becomes a net consumer, not a producer, of the world's economic
output. It will have to go into debt to pay for consumption instead of investing in future growth.
If the deficit continues long enough, the country may have to sell off its assets to pay its
creditors. These assets include natural resources, land and commodities,

A balance of payments surplus means the country exports more than it imports. Its government
and residents are savers. They provide enough capital to pay for all domestic production. They
might even lend outside the country.

A surplus boosts economic growth in the short term. That's because it's lending money to
countries that buy its products. That boosts its factories, allowing them to hire more people.

In the long run, the country becomes too dependent on export-driven growth. It must encourage
its residents to spend more. A larger domestic market will protect the country from exchange
rate fluctuations. It also allows its companies to develop goods and services by using its own
people as a test market.

BOP Components

The balance of payments has three components. They are the financial account, the capital
account and the current account.The financial account describes the change in international
ownership of assets. The capital account includes any financial transactions that don't affect
economic output. The current account measures international trade, the net income on
investments and direct payments. Here are the balance of payments components and how they
work together.

Financial Account

The financial account measures 1) changes in domestic ownership of foreign assets and 2)
foreign ownership of domestic assets. If foreign ownership increases more than domestic
ownership does, it creates a deficit in the financial account. This means the country is selling off
its assets, like gold, commodities and corporate stocks, faster than it is acquiring foreign assets.
More
Capital Account

Current Account
he current account measures a country's trade balance plus the effects of net income and direct
payments. When the activities of a country's people provide enough income and savings to fund all their
purchases, business activity and government infrastructure spending, then the current account is in
balance.

Current Account: Deficit

A current account deficit is when a country's residents spend more on imports than they save. To
fund the deficit, other countries lend to, or invest in, the deficit country's businesses. The lender
country is usually willing to pay for the deficit because its businesses profit from exports to the
deficit country. In the short run, the current account deficit is a win/win for both nations.

But if the current account deficit continues for a long time, it will slow economic growth. Why? The
foreign lenders will begin to wonder whether they will get an adequate return on their investment. If
demand falls off, the value of the borrower country's currency may also decline. This leads to inflation as
import prices rise. It also creates higher interest rates as the government must pay higher yields on its
bonds.

Current Account: U.S. Deficit

The U.S. current account deficit reached a record $803 billion in 2006. That created concern
about the sustainability of such an imbalance. Even though the recession scaled it back, it
appears it's on the rise again.

The warnings made by the Congressional Budget Office, and the solutions it proposed, are
relevant again today. The safety of investing in the United States could once again become a
concern to foreign investors. Americans have cut back on credit card spending, and the savings
rate has inched up, but is it enough to fund domestic

Current Account: Trade Balance


The trade balance measures a country's imports and exports. This is the largest component of the
current account, which is itself the largest component of the balance of payments. Most countries try to
avoid a trade deficit, but it's a good thing for emerging market countries. It's helps them grow faster
than they could if they maintained a surplus.

Trade Balance: U.S. Imports and Exports

The United States traded $4.9 trillion with foreign countries in 2016. That was $2.2 trillion
in exports and $2.7 trillion in imports. It's the third-largest exporter, but the top importer. With
its size and wealth, it should be exporting more. Find out why it isn't in U.S. Exports: Challenges
and Opportunities.
Why can't we make everything at home? Find out in U.S. Imports. America imports more than
half of its goods from just five countries

Definitions and Basics


Balance of Payments, from the Concise Encyclopedia of Economics

The balance of payments accounts of a country record the payments and receipts of the
residents of the country in their transactions with residents of other countries. If all transactions
are included, the payments and receipts of each country are, and must be, equal. Any apparent
inequality simply leaves one country acquiring assets in the others. For example, if Americans
buy automobiles from Japan, and have no other transactions with Japan, the Japanese must end
up holding dollars, which they may hold in the form of bank deposits in the United States or in
some other U.S. investment. The payments of Americans to Japan for automobiles are balanced
by the payments of Japanese to U.S. individuals and institutions, including banks, for the
acquisition of dollar assets. Put another way, Japan sold the United States automobiles, and the
United States sold Japan dollars or dollar-denominated assets such as Treasury bills and New
York office buildings....

Although the totals of payments and receipts are necessarily equal, there will be inequalities—
excesses of payments or receipts, called deficits or surpluses—in particular kinds of
transactions. Thus, there can be a deficit or surplus in any of the following: merchandise trade
(goods), services trade, foreign investment income, unilateral transfers (foreign aid), private
investment, the flow of gold and money between central banks and treasuries, or any
combination of these or other international transactions.

Imports, from AmosWEB's Economics Gloss*arama.

IMPORTS: Goods and services produced by the foreign sector and purchased by the domestic
economy. In other words, imports are goods purchased from other countries. The United States,
for example, buys a lot of the stuff produced within the boundaries of other countries, including
bananas, coffee, cars, chocolate, computers, and, well, a lot of other products. Imports,
together with exports, are the essence of foreign trade--goods and services that are traded
among the citizens of different nations. Imports and exports are frequently combined into a
single term, net exports (exports minus imports)....

Exports, from AmosWEB's Economics Gloss*arama.

EXPORTS: The sale of goods to a foreign country. The United States, for example, sells a lot of
the stuff produced within our boundaries to other countries, including wheat, beef, cars,
furniture, and, well, almost every variety of product you care to name. In general, domestic
producers (and their workers) are elated with the prospect of selling their goods to foreign
countries--leading to more buyers, a higher price, and more profit. The higher price, however, is
bad for domestic consumers. In that domestic consumers tend to have far less political clout
than producers, very few criticisms of exports can be heard....

Balance of Trade, from AmosWEB's Economics Gloss*arama.

BALANCE OF TRADE: The difference between the value of goods and services exported out of a
country and the value of goods and services imported into the country. The balance of trade is
the official term for net exports that makes up the balance of payments. The balance of trade
can be a "favorable" surplus (exports exceed imports) or an "unfavorable" deficit (imports
exceed exports). The official balance of trade is separated into the balance of merchandise trade
for tangible goods and the balance of services....

A balance of trade surplus is most favorable to domestic producers responsible for the exports.
However, this is also likely to be unfavorable to domestic consumers of the exports who pay
higher prices.

Alternatively, a balance of trade deficit is most unfavorable to domestic producers in


competition with the imports, but it can also be favorable to domestic consumers of the exports
who pay lower prices....
Balance of Payment, Issues, porspects & challengesPpt

1. 1. Group Member’s Name 1) Sudipta Chowdhury 103011 54 6) Kazi Md. Abdull Al


Noman 103011 48 2) Sabrina Mahmood 103010 17 7) Ziaul Hoque 103011 02 3)
Mahmud Hasan 103010 85 8) Lucky Akter 103011 59 4) Biswajit Dey 103010 25 9) Md.
Habibur Rahman Habib 103010 69 5) Md. Monirul Murshed 103010 10) Billal Hossain
103011
2. 2. Balance of payment is a statistical statement designed to provide, for a specific period
of time, a systematic record of an economy’s transactions with the rest of the world. Its
major components are the current account and the financial account. The spending of
foreign currency is debit and it is a negative item. If a transaction earns foreign exchange
for the nation, it is recorded as a plus item and it is a credit. Generally speaking, imports
are debits and exports are credit. If credits are more, i.e. exports are more, than it is a
positive sign for the economy and it is known as a favorable balance of payment. If debits
are more, i.e. imports are more, than it is a negative sign for the economy and it is known
as an unfavorable balance of
3. 3. A balance of payments (BOP) sheet is an accounting record of all monetary
transactions between a country and the rest of the world. These transactions include
payment for the country’s exports and imports of goods, services and financial capital, as
well as financial transfers.
4. 4. Trade – buying and selling of goods and services. Exports – a credit entry. Imports – a
debit entry. Trade balance – the sum of exports and imports. Factor income – repayments
and dividends from loans and investments. Factor earnings – a credit entry. Factor
payments – a debit entry. Factor income balance – the sum of earnings and payments.
5. 5. The balance of payments is divided into two major accounts – A) The Current
Accounts and B) The Capital Accounts
6. 6. The balance of payments on Currents Account includes items like imports & exports,
expenses on travel, transportation, insurance, investment income etc. These relate to
current transactions i.e. it shows all flows that directly affect the national income
accounts
7. 7. Items Taka Export of goods and services ( A ) *** Import of goods and services ( B )
*** Trade Balance ( A-B )= C **** Investment Income ( D ) *** Debt Service Payment
( E ) *** Net remittance and transfer ( F ) *** Total Current Account Balance (C+D-
E+F)=G ****
8. 8. The Capital Account, on the other hand, is made up of capital transactions e.g.
borrowing and lending of capital, repayment of capital, sale & purchase of securities and
other assets to and from foreigners - individual & Governments i.e. it shows all flows that
directly affect the national balance sheet. These transactions show the International
monetary reserve position of the country.
9. 9. Items Taka Direct foreign investment ( H ) *** Foreign loan ( I ) *** Increase in
foreign assets ( J ) *** Resident capital of outflow ( K ) *** Total Capital Account
Balance ( H+I-J-K)=L ****
10. 10. Items Taka Export of goods and services ( A ) *** Import of goods and services ( B )
*** Trade Balance ( A-B )= C **** Investment Income ( D ) *** Debt Service Payment
( E ) *** Net remittance and transfer ( F ) *** Total Current Account Balance (C+D-
E+F)=G **** Direct foreign investment ( H ) *** Foreign loan ( I ) *** Increase in
foreign assets ( J ) *** Resident capital of outflow ( K ) *** Total Capital Account
Balance ( H+I-J-K)=L **** Increase/ Decrease Cash Reserve Account ( M ) *** Errors
& Omission ( M-G-L ) ***
11. 11. The economy of Bangladesh is branded worldwide for its quality RMG products. As
we have basic export revenue from RMG sector, a slight change in this sector will have a
significant impact on our economy. From spinning to weaving, from knitwear to
leisurewear and high street fashions, the textiles and clothing industry is Bangladesh’s
biggest export earner with value of over $ 16 billion of exports in 2009-10.
12. 12. Import dependence is one of BOP. The group of import is significantly higher than
that of export. If can reduce import dependency or increase the level of export then it will
help to reduce the
13. 13. Major Commodities 2012-2013 ( Million US) 1. FOOD GRAINS i. Rice ii. Wheat 2.
Milk & cream 3. Spices 4. Oil seeds 5. Edible oil 6. Pulses all sorts 7. Sugar 8. Clinker 9.
Crude petroleum 10. POL 11. Chemical 12. Pharmaceutical products 13. Fertilizer 14.
Dyeing, tanning etc. materials 15. Plastics and rubber articles thereof 16. Raw cotton 17.
Yarn 18. Textile and articles thereof 19. Staple fibre 20. Iron, steel and other base 21.
Capital machinery 22. Others 726 30 696 214 118 242 1402 422 731 487 1102 3642
1302 119 1188 399 1366 2005 1356 3273 455 2335 1835 6860 Sub Total 31579 Import
of EPZ 2505 Grand Total 34084
14. 14. Imports of goods and services (BOP; US dollar) in Bangladesh was last measured at
37660209273.17 in 2012, according to the World Bank.
15. 15. Goods imports (BOP; US dollar) in Bangladesh was last measured at
32289687006.31 in 2012, according to the World Bank
16. 16. Transport services (% of service imports; BOP) in Bangladesh was last measured at
78.89 in 2012, according to the World Bank.
17. 17. Another strong component of BOP is remittance inflow. Our largest resource is
manpower and our remittance inflow demonstration a satisfactory performance.
Bangladesh scored the second position as the remittance earning nation. We can increase
our remittance in two ways : •By exploring new labor market. •Increasing the skill of
existing manpower working abroad.
18. 18. Foreign direct investment (FDI) is a potent weapon of developing the economy of
Bangladesh and can play an important role in achieving the country’s socio-economic
objectives including poverty reduction goals. In a capital- poor country like Bangladesh,
FDI can emerge as a significant vehicle to - To build up physical capital, To create
employment opportunities, To develop productive capacity, To enhance skills of local
labor through transfer of technology and help to integrate the domestic economy with
the global economy.
19. 19. This policy note provides an assessment of the current situation of FDI in Bangladesh
and examines its impact on the country’s balance of payments. FDI usually involves
participation in management, join venture, transfer of technology & expertise.
20. 20. Dimensional Problems There are several dimensional problems in case of poor FDI
Performance. • Lack of branding our investment along with a poor RMG wings for FDI. •
We have poor infrastructural facilities, insufficient gas & poor supply & unstable
political setting • Failing to ensure work place security.
21. 21. Positive Effects On ‘ Balance of Payment’: Export: Bangladesh’s export sector has
played a key role in the country’s economic development over the past three decades and
continues to play an important role in the economy in terms of • employment,
empowerment and social change; • investment; • foreign exchange earnings; and •
multiplier impacts.
22. 22. Positive Effects On ‘ Balance of Payment’Income on Investment: Income on
investmentincludes the interest income, dividend income from foreign securities and
bonds. If the income on investment increases, the cash inflow of a country also increases
and have a positive impact on BOP. Any Receipt of Foreign Money: Sometimes different
donor countries for example Japan, China provide assistance in terms of subsidies or
loan.
23. 23. Positive Effects On ‘ Balance of Payment’ Any Gifts Or Aids: ADB, IDB, World
Bank, WHO, UNICEF, UNAID provides aids in case of educational and health sector
which creates a favorable position for Bangladesh. Any Foreign Sale of Stock & Bond:
Foreign securities and bond held by Bangladeshi people are sold in the foreign market
generate money receipt in our country.
24. 24. Negative Effects On ‘Balance of Payment’ Import: Import has a negative effect not
only on BOP but also on the monetary environment of a country specially for
Bangladesh. If we import products or services, it reduces foreign reserve. It also increases
the demand for the foreign currency and it causes devaluation of Taka. There are some
reasons for dependency on import. Those are given below- •Global Recession since 2008
•Deteriorating law and order situation which stops investment •Slow growth of
production
25. 25. •Low exports •Electricity shortage/Mismanagement which result in low crops
•Energy crisis causing low output and closure of many industrial units, which reduces the
exports •Political instability •Fiscal policies •Trade restrictions in developed countries
•Limitless export of primary commodities Depreciation of Bangladeshi Taka. •Inflation
•Low foreign exchange remittances
26. 26. Investment in Foreign Country: Investment generates income. But, too much
investment reduces the reserve of a country. Stock of direct foreign investment - abroad:
$108.1 million (31 December 2012 est.) Country comparison to the world: 89 $107
million (31 December 2011 est.)
27. 27. Payment to Foreign Country: Sometimes, we have to take loan from the rest of the
world for our country. So, we have to pay interest and dividend that stimulate the outflow
of Taka. And also if the foreigners invest in our country, they earn on their investment
and take those money to their country that also stimulate outflow of money. Gift or Aid
Given: Bangladesh not only takes gifts/ aids from rest of the world, but also in case of
natural calamities or
28. 28. Any Purchase of Stock or Bonds From Abroad: When Bangladeshi people purchases
stocks and bonds from foreign country, then it increases outflow of money and it reduces
reserve of our money.
29. 29. • Political instability and uncertainty • GSP (Generalized System of Preference)
Facility • Lack of good image • Infrastructural problem • Indecision of Government •
Lack of proper policy regarding FDI • Lack of good governance • Obsolete technology •
Corruption and bureaucratic delay
30. 30. In outside world Bangladesh is familiar as a poor, terrorist, full of natural
calamities and extremist country.
31. 31. Foreign investors always consider infrastructural facilities to establish industry in
foreign country. These facilities include Transportation Electricity supply Gas fuel
power supply Building safety etc.
32. 32. For example, we can say the FDI proposal of TATA group government cannot take
the decision within one and half years. One reason is that the lack of effectiveness of the
govt. in case of big proposal.
33. 33. When the government changes FDI policy also changes. And government cannot take
the better policy regarding coal policy. Due to change policy within a short period of time
investors are not interested to invest in our country.
34. 34. If we want to understand about the lack of good governance , Padma Setu will be the
best example for us to understand.
35. 35. We need to change old technology by modern technology.
36. 36. Corruption spread in every sector of our country. Due to corruption and bureaucratic
delay in every sector, investors are afraid to come in our country for their investment.
37. 37. Foreign direct investment (FDI) may increase Future expectations: - Foreign direct
investment (FDI) may increase if there is political stability and continuation of policies. -
If the IMF, World Bank and Asian Development Bank release their loans for Bangladesh
as promised, then our balance of payment may show some improvement. - Friends of
Bangladesh have promised significant monetary support, which will certainly have a
positive effect. - Imports are expected to decrease. If this happens, it will have a positive
effect on balance of payment, since this is relying on foreign elements and support. If this
is accomplished, then the balance of
38. 38. •Quality of bureaucracy and governance •Improvement of law and order situation
•Development of infrastructure and human resources •Improvement of port services
•Privatization and further reforms •Modernization of business law •Setting up of
industrial parks •Setting up of new EPZs •Improving the country’s image abroad
•Policies regarding macroeconomic stability •Economic and commercial diplomacy

After the implementation of globalization policy, world has become a small village and now
every contry freely transacts with the other countries of the world. In this context, two statements
are prepared to keep a record of the transactions made by the country internationally; they are
Balance of Trade (BOT) and Balance of Payments (BOP). The balance of payment keeps a
track of transaction in goods, services, and assets between the country’s residents, with the rest
of the world.

On the other hand, the balance of exports and import of the product and services is termed as
Balance of Trade.

The scope of BOP is greater than BOT, or you can also say that Balance of Trade is a major
section of Balance of Payment. Let’s understand the difference between Balance of Trade and
Balance of Payment in the article given below.

Content: Balance of Trade Vs Balance of Payments

1. Comparison Chart
2. Definition
3. Key Differences
4. Conclusion

Comparison Chart

Basis for
Balance of Trade Balance of Payment
Comparison

Balance of Trade is a statement that Balance of Payment is a statement that keeps


Meaning captures the country's export and import track of all economic transactions done by the
of goods with the remaining world. country with the remaining world.

Transactions related to both goods and


Records Transactions related to goods only.
services are recorded.

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

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

It can be Favorable, Unfavorable or


Result Both the receipts and payment sides tallies.
balanced.

It is a component of Current Account of


Component Current Account and Capital Account.
Balance of Payment.

Definition of Balance of Trade

Trade refers to buying and selling of goods, but when it comes to buying and selling of goods
globally, then it is known as import and export. The Balance of Trade is the balance of the
imports and exports of commodities made to/by a country during a particular year. It is the most
important part of the current account of the country’s Balance of Payment. It keeps records of
tangible items only.

The Balance of Trade shows the variability in the imports and exports of merchandise made by a
country with the rest of the world over a period. If the imports and exports made to/by the
country tallies, then this situation is known as Trade Equilibrium, but if imports exceed exports,
then the condition is unfavourable as it states that the economic status of the country is not good,
and so this situation is termed as Trade Deficit. Now, if the value of exports is greater than the
value of imports, this is a favourable situation because it indicates the good economic position of
the country, thus known as trade surplus.

Definition of Balance of Payments


The Balance of Payments is a set of accounts that recognises all the commercial transactions
performed by the country in a particular period with the remaining countries of the world. It
keeps the record of all the monetary transactions done globally by the country on commodities,
services and income during the year.

It combines all the public-private investments to know the inflow and outflow of money in the
economy over a period. If the BOP is equal to zero, then it means that both the debits and credits
are equal, but if the debit is more than credit, then it is a sign of deficit while if the credit exceeds
debit, then it shows a surplus. The Balance of Payment has been divided into the following sets
of accounts:

 Current Account: The account that keeps the record of both tangible and intangible items.
Tangible items include goods while the intangible items are services and income.
 Capital Account: The account keeps a record of all the capital expenditure made and income
generated collectively by the public and private sector. Foreign Direct Investment, External
Commercial Borrowing, Government loan to Foreign Government, etc. are included in Capital
Account.
 Errors and Omissions: If in case the receipts and payments do not match with each other then
balance amount will be shown as errors and omissions.

Key Differences between Balance of Trade and Balance of Payments

The following are the major differences between the balance of trade and balance of payments:

1. A statement recording the imports and exports done in goods by/from the country with the
other countries, during a particular period is known as the Balance of Trade. The Balance of
Payment captures all the monetary transaction performed internationally by the country during
a course of time.
2. The Balance of Trade accounts for, only physical items, whereas Balance of Payment keeps track
of physical as well as non-physical items.
3. The Balance of Payments records capital receipts or payments, but Balance of Trade does not
include it.
4. The Balance of Trade can show a surplus, deficit or it can be balanced too. On the other hand,
Balance of Payments is always balanced.
5. The Balance of Trade is a major segment of Balance of Payment.
6. The Balance of Trade provides the only half picture of the country’s economic position.
Conversely, Balance of Payment gives a complete view of the country’s economic position.

Conclusion

Every country of the world keeps the record of inflow and outflow of money in the economy
with the help of a Balance of Trade and Balance of Payments. They reflect the actual position of
the whole economy. With the help of BOT and BOP, analysis and comparisons can also be made
that how much trade has increased or decreased, since the last period.