BOP

Why the study of BOP is important for Finance Manager/Professional?

BOP
It is a systematic record of all economic transactions between the residents of the country and ROW.

BOP
It is not a Balance Sheet, rather it is resembled to Sources and uses of funds.

BOP
It is prepared on the system of Double entry.

BOP
Economic Barometer of the countrys health. It can furnish the key to an understanding of the economic problems.

BOP
Relates issues like:
Import controls Export Controls Exchange rate mechanism External Debt (International Solvency)

BOP
India makes BOP in INR and USD.

Balance of Trade
Difference between merchandise Export and Import of the country.

Format of BOP
1. Imports 2. Exports 3. Trade Balance (2-1) 4. Invisibles 5. Current Account (net of 3 and 4) 6. Capital Account 7. Total Capital (Total of 6) 8. Overall Balance (5+7) 9. Monetary Movements 10. Total of 9
9

1. Imports
Includes Cost, Insurance and Freight.

10

2. Exports
Free on board.

11

3. Trade Balance (BOT)

Net of Export and Import.

12

4. Invisibles
Services like Foreign Travel, Transportation, Insurance, Investment Income, income of the government not included elsewhere, Unrequited transfer payments (both official and private) and miscellaneous receipt and payments.

13

4. Invisibles
(a) Receipts (b) Payments (c) Net

14

5. Current Account (net)

Net of BOT and Invisibles.

15

6. Capital Account
Foreign investments, long term and short term loan (External assistance and commercial borrowings and banking flows).

16

6. Capital Account (I)

Foreign investments. Direct and Portfolio Investments. Inflow, outflow and net.

17

6. Capital Account (II)

Loans. Both short term and long term loans.

18

6. Capital Account (II) (i)

External assistance. Inflow, outflow and net.

19

6. Capital Account (II) (ii)

Commercial Borrowings. Inflow, outflow and net.

20

6. Capital Account (II) (iii)

Banking. Receipt, Payments and net.

21

6. Capital Account (II) (iv)

Rupee Debt Service. This is an item particular to India as a bilateral rupee payment agreement we had with Russia. Debt owed to Russia denominated in Rupees is paid back through Exports.

22

6. Capital Account (II) (v)

Other capital. Receipt, payment and net.

23

6. Capital Account (II) (vi)

Errors and omissions. As many entries go unrecorded this is as an adjustment entry.

24

7. Total Capital
Net of (i to vi)

25

8. Overall Balance
Net of 5 and 7. Current + Capital a/c.

26

9. Monetary Movements (a)

IMF Transactions.

27

9. Monetary Movements (a) (i)

Purchases from IMF.

28

9. Monetary Movements (a) (ii)

Paid

29

9. Monetary Movements (a) (iii)

Net of (i and ii).

30

9. Monetary Movements (b)

Increase or decrease in Reserves.

31

10. Total
9(a) + 9(b)

32