2. IntroductIon:
Every business/firm prepares its annual final accounts
and balance sheet of its transactions with the rest of
the society with a view to knowing its Profit or loss
and assets and liabilities.
Lly, every nation carrying out economic transactions
with foreign countries Prepares its balance of
Payment accounts periodically with a view to taking
stock of its assets and liabilities & its receipts from
and payment obligations to the rest of the world.
3. defInItIon & Importance of Bop:
A systematic record of all economic transactions
between the residents of a country and residents of
foreign countries during a certain period of time is
called balance of payment.
The System of recording the economic transactions is
double entry bookkeeping system.
Economic transactions include all such transactions that
involve the transfer of title or ownership.
While some transactions involve physical transfer of
goods , services, assets and money along with the
transfer of title, some transactions do not.
4. uses of Bop:
It Provides an extremely useful data for the
economic analysis of the country’s weakness
& strength as a Partner in international trade.
BOP also reveals the changes in the
composition and magnitude of foreign trade.
BOP also Provides indications of future
repercussions of countries Past trade
Performances.
5. Bop accounts:
There are two broad categories of BOP
Transactions:
Current transactions:
It Pertain to export & Import of
goods & services that change the current level
of consumption in the country or bring a
change in the current level of national(money)
income.
6. Capital transaction:
are those transactions which
increase or decrease a country’s total stock of
capital , instead of affecting the current level
of consumption or national income.
7. In accordance with the two kinds of
transactions, BOP accounting is divided
into two major accounts:
Current A/c
Capital A/c.
8. current account:
Current account can be further grouped
as:
1) Visible items(export & Import of goods)
2) Invisible items(all other items in the
current account payment & receipt for the
services such as banking , insurance and
shipping etc.)
9. But , sometimes another category called
“unrequired Transfer ” is created to give a
separate treatment to the items like gifts ,
donations, military aid , technical
assistance etc.
10. capItal account:
Broad categories of capital account items
are
a) Short-term capital movement
b) Long-term capital movement
c) Changes in the exchange reserves
11. short-term capItal movement
I.Purchase of Short-term securities such as
treasury bills, commercial bill &acceptance
bill
II.Speculative purchase of foreign currency
III.Cash balances held by foreigners for
reason as fear of war, political instability &
so on
12. long-term capItal movements
I. Direct investments in shares bonds and
in real estate and physical asset such as
plant, building, equipment & so forth in
which investors hold a controling power
II. Portfolio investment in stocks & bonds
such as government securities, securities
of firms not entitling the holder with
controlling power