m
   



 Y


V 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.
 Ú
Ú 
 

Ú 
V Provides data for economic analysis
V Reveals changes in the composition &
magnitude of foreign trade
V Provides indications of future repercussions of
countryd s past trade performances
V Reveals the weak and strong points of a
countryd s foreign trade relations
 
   
V Õavorable Balance Of Payments ½ Value of total
receipts more than total payments
V Adverse Balance Of Payments ½ Value of total
receipts less than total payments
V Balanced Balance Of Payments ½ Value of total
receipts equals total payments
V ?nrequited receipts ½ Receipts for which nothing
has to be paid in return.
V ?nrequited payments ½ Payments for which
nothing is received in return.
  


Y

Yefinition: Yifference between value of exports and

imports of visible items only

m
m 

u Records only merchandise uRecords transactions relating to

transactions both goods and services
u Yoes not record transactions of u Records transaction of capital
capital nature nature
u A part of current account of u Includes BOT , Balance of
BOP services , Balance Of ?nrequited
Transfers and Balance Of Capital
Transactions.
 

Ú 

 
ë

 ë
ëë  ëë 


 
   


!
 
 
 


ë!  "
 ! #

  
  $!
%!





 
V All transactions relating to goods, services and unrequited
transfers constitute current account

V Õlow of items pertaining to specific period of time

V Visible items include goods

V Invisible items include services


Ú 

 

V All transactions indicating changes in stock

magnitudes concerning capital receipts and payments
constitute capital account

V Relates to
- Borrowing
- Capital repayment
- Sale of assets
- Change in stock of gold
- Change in reserve of foreign currency
 Y



  





 Y

Ú 

 

ë

ëë  ë 
ëë 
u Indicates flow aspect of u Indicates changes in stock
countryd s national magnitudes
transactions u Relates to all transactions
u Relates to goods , constituting debts and
services and unrequited transfer of ownership
transfers
 



 


Ú 
 
ë


Current A/c:
uExports of goods(Visible items)
uExports of services (Invisibles)
u?nrequited receipts(gifts ,
remittances, indemnities,
etc. form foreigners)
Capital A/c:
uCapital receipts (Borrowings from
abroad , capital repayments by , or
sale of assets to foreigners, increase
in stock of gold and reserves of
foreign currency etc.)


m

Current A/c:
uImports of goods(Visible items)
uImports of services(Invisibles)
u?nrequited payments( gifts,
remittance, indemnities etc. to
foreigners)
Capital A/c:
uCapital payments (lending to ,
capital repayments to , or purchase
of assets from foreigners, reduction
in stock of gold and reserves of
foreign currency etc.)

  
&

  Ú

6et us consider the following hypothetical situation:

V Export of goods Rs. 550 Crore

V Import of goods Rs. 650 Crore

V Export of services Rs. 150 Crore

V Import of services Rs. 70 Crore

V ?nrequited receipts Rs. 100 Crore

V ?nrequited payments Rs. 80 Crore

V Capital receipts Rs. 200 Crore

V Capital payments Rs. 200 Crore.

  

Ú  

 
ë  Y
V Current A/c:
V Current A/c:
1) Export of goods 550 1) Import of goods 650
2) Export of services 150
2) Import of services 70
3) ?nrequited receipts 100 3) ?nrequited payments 80

V Capital A/c: V Capital A/c:

1) Capital receipts 200 1) Capital payments 200

Total receipts 1000 Total payments 1000

 Y   
 
V Total receipts and total payments inequality
shows disequilibrium of balance of payments
account
V Total receipt and payment arising from
autonomous transactions determine the
deficit or surplus in the balance of
payments
V If payments>receipts, BOP shows Yeficit

V If payments<receipts, BOP shows Surplus

 KY
ÚY   
 

V Õundamental Yisequilibrium

V Cyclical Yisequilibrium

V Structural Yisequilibrium

  
Y   
 
V Increase in imports

V Slow progress in exports

V Burden of interest payments

V International developments

V Yeficit in capital account





  

V Yevaluation
V Export promotion

V Import restrictions

V Import substitution

V Government intervention

V Supply of credit

V Special treatment to NRIs

V Announcement of trade policies

V Õoreign aid

V Improvements in production efficiency

 ÚY  

V INYIRECT MEAS?RES
Income measures
Õiscal Policy
Monetary Policy
Price measures

V YIRECT MEAS?RE
Exchange control