Balance of Payments IBM

8/6/2019 Balance of Payments IBM

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Balance of payments


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Balance of Trade

The difference between total receipts on account

of exports of goods and total payments on

account of imports of goods.

Favorable BOT: X >M

Unfavorable BOT: X


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BOP

.. is the record of the economic and financial flows

that take place over a specified time period

between residents and non-residents of a given

country.


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Divided into..

Current account

Capital account

Unilateral Transfer Account(gifts, private

remittances, disaster relief etc.)

Official Reserves Account (settlement of

International Claims)


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Std components of BOP

CURRENT ACCOUNT CAPITAL ACCOUNT

(+) Export +(-) Direct Investment

(-) Import +(-) Portfolio Investment

= Trade Balance +(-) Other Long term Capital

(+) Exports on Non-financial services +(-) Other Short term Capital

(-) Imports on Non-financial services +(-) Net errors and omissions

(+) Investment Income(Credit) +(-) Total Change in reserves

(-) Investment Income(Debit)+(-) Private unrequited transfers

+(-) Official unrequited transfers

= Current Account balance = Capital Account balance


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Current A/cTransactions

Merchandise Export

Merchandise Import

Export of a non-financial service

Investment Income: Export of a financial service

An unrequited Transfer


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Current Account of BOP

Includes all transactions relating to sale and

purchase of all visible items as well as

transactions related to invisible items.

Fact: whereas Indias trade balance has always

been negative, its balance on invisibles account

has been positive for most of the years.


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Capital Account of BOP

It shows all inflows and outflows of capital.

These flows may be in form of borrowings from

and lending to abroad and receipts and

payments of capital on account of sale and

purchases of shares and securities to other

countries or from other countries.


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Items of Capital Account

1. Autonomous Capital Transactions: Investment

decisions based on expectations about the profitability

of investments and not as a result of deficit or surplus

on current account BOP.2. Accommodating Capital Transactions: Transactions due

to deficit surplus in BOP. If country has deficit BOP, it

may be covered by assistance from foreign Govts., orinternational institutions, or withdrawals of foreign

exchange reserves. IfSurplus BOP, accommodating

transactions in form of external assistance or increase

in its foreign exchange reserve or both.


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Balance of Payments Disequilibrium

Economic Factors:

DevelopmentDisequilibrium

CyclicalDisequilibrium

Structural

Disequilibrium

Political Factors:

Sociological Factors


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Correction ofDisequilibrium

Automatic correction:

Deliberate Measures: Monetary, trade,

miscellaneous


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Correction of BOPDisequilibrium

Automatic CorrectionDeliberate Measures

Trade measures

Monetary Measures1. Money expansion/

Contraction

2. Devaluation/ revaluation

3. Exchange control

Miscellaneous1. Foreign Loans

2. Import substitution

3. Tourism development

Export Promotion1. Abolition/reduction of

Export duties

2. Export subsidies

3. Export incentives

Import control1. Import duties

2. Import prohibition

3. Import quotas


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Financing BOP deficit

Using Forex Reserves

External Assistance

Documents

Balance of Payments IBM