Balance of Payment and its components .ppt

This presentation gives an insight on Balance of Payment

1. AMITY GLOBAL
BUSINESS SCHOOL Noida
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Balance of Payment
Dr. Sachin Rohatgi

2. AMITY GLOBAL
BUSINESS SCHOOL Noida
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3. AMITY GLOBAL
BUSINESS SCHOOL NoidaWhat is BOP
•Thebalanceofpaymentisthestatementthatfilesallthetransactions
between:
a)Theentities,
b)Governmentanatomies,or
c)Individualsofonecountrytoanotherforagivenperiodoftime.
•Allthetransactiondetailsarementionedinthestatement,givingtheauthority
aclearvisionoftheflowoffunds.
•Afteralltheitemsareincludedinthestatement,thentheinflowandthe
outflowofthefundshouldmatch.
•Foracountry,thebalanceofpaymentspecifieswhetherthecountryhasan
excessorshortageoffunds.Itgivesanindicationofwhetherthecountry’s
exportismorethanitsimportorviceversa.
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4. AMITY GLOBAL
BUSINESS SCHOOL NoidaWhat is BOP
•Balanceofpaymentisanaccountoftheinternational
transactionsofacountry.
•Itshowshowthecountryisfaringintrade,attractingcapital
fromabroad,andtheeffectofthatonitsforeignexchange
reserves.
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5. AMITY GLOBAL
BUSINESS SCHOOL NoidaComponents
•ComponentsofBalanceofPaymentare:
a)CurrentAccount
b)CapitalAccount
c)Changeinforeignexchangereserves
d)ErrorsandOmission
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6. AMITY GLOBAL
BUSINESS SCHOOL NoidaCurrent Account
CurrentAccount:
•Currentaccountscansalltheincomingandoutgoingofgoods
andservicesbetweencountries.
•Allthepaymentsmadeforrawmaterialsandconstructedgoods
arecoveredunderthisaccount.
•Fewotherdeliveriesthatareincludedinthiscategoryarefrom
tourism,engineering,stocks,businessservices,transportation,
androyaltiesfromlicensesandcopyrights.Allthesecombined
togethertomakeaBalanceofPayment(BOP)ofacountry.
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7. AMITY GLOBAL
BUSINESS SCHOOL NoidaCurrent Account
a)ExportandImportofGoods(VisibleTrade):
•Amajorpartoftransactionsinforeigntradeisintheformof
exportandimportofgoods.
•Paymentforimportofgoodsiswrittenonthenegativeside
(debititems)andreceiptfromexportsisshownonthepositive
side(credititems).
•Balanceofthesevisibleexportsandimportsisknownasbalance
oftrade(ortradebalance).
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8. AMITY GLOBAL
BUSINESS SCHOOL NoidaCurrent Account
b)ExportandImportofServices(InvisibleTrade):
•Itincludesalargevarietyofnon-factorservices(knownas
invisibleitems)soldandpurchasedbytheresidentsofa
country,toandfromtherestoftheworld.
•Paymentsareeitherreceivedormadetotheothercountriesfor
useoftheseservices.
•Servicesareofgenerallythreetypes:Shipping,Bankingand
Insurance.
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9. AMITY GLOBAL
BUSINESS SCHOOL NoidaCurrent Account
c)UnilateralTransfers:
•Unilateraltransfersincludegifts,donations,personal
remittancesandother‘one-way’transactions.
•Theserefertothosereceiptsandpayments,whichtakeplace
withoutanyserviceinreturn.
•Receiptofunilateraltransfersfromrestoftheworldisshown
onthecreditsideandunilateraltransferstorestoftheworldon
thedebitside.
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10. AMITY GLOBAL
BUSINESS SCHOOL NoidaCurrent Account
d)Incomereceiptsandpaymentstoandfromabroad:
•Itincludesinvestmentincomeandpaymentsintheform
ofinterest,rentandprofits.
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11. AMITY GLOBAL
BUSINESS SCHOOL NoidaCapital Account
•Wherecurrentaccountshowsyoutrade,capitalaccountcanbe
thoughtofastheinvestmentspartoftheinternational
transactions.
•CapitalAccountisfurtherdividedintoequityanddebt.
•FDIandFIImoneyisapartofequityinvestmentwhereastrade
credit,externalcommercialborrowingsandmoneydepositedin
thebankbyNRI’saredebtinvestment.
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12. AMITY GLOBAL
BUSINESS SCHOOL Noida
Change in forex reserves
•Theforeignexchangereservesarethefinancialassetsofthe
governmentheldinthecentralbank.
•AchangeinreservesservesasthefinancingiteminIndia’s
BOP.
•Anywithdrawalfromthereservesisrecordedonthepositive
(credit)sideandanyadditiontothesereservesisrecordedon
thenegative(debit)side.
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13. AMITY GLOBAL
BUSINESS SCHOOL Noida
Errors and Omission
•Errorsandomissionsreflecttransactionsthatare
knowntohaveoccurredbutforwhichnospecific
measurewasmade.
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14. AMITY GLOBAL
BUSINESS SCHOOL Noida
Why BOP is Important?
Acountry’sBOPisvitalforthefollowingreasons:
•TheBOPofacountryrevealsitsfinancialandeconomicstatus.
•ABOPstatementcanbeusedtodeterminewhetherthe
country’scurrencyvalueisappreciatingordepreciating.
•TheBOPstatementhelpsthegovernmenttodecideonfiscaland
tradepolicies.
•Itprovidesimportantinformationtoanalyseandunderstandthe
economicdealingswithothercountries.
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15. AMITY GLOBAL
BUSINESS SCHOOL Noida
Current Position
•Indiahasbeenrecordingsustainedtradedeficitssince1980
mainlyduetothehighgrowthofimports,particularlyofcrude
oil,goldandsilver.
•Inrecentyears,thebiggesttradedeficitswererecordedwith
China,SaudiArab,Iraq,SwitzerlandandKuwait.
•IndiarecordstradesurpluseswithUS,Singapore,Germany,
NetherlandsandUnitedKingdom.
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16. AMITY GLOBAL
BUSINESS SCHOOL Noida
Current Position
•Indiahasbeenrecordingsustainedtradedeficitssince1980
mainlyduetothehighgrowthofimports,particularlyofcrude
oil,goldandsilver.
•Inrecentyears,thebiggesttradedeficitswererecordedwith
China,SaudiArab,Iraq,SwitzerlandandKuwait.
•IndiarecordstradesurpluseswithUS,Singapore,Germany,
NetherlandsandUnitedKingdom.
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17. AMITY GLOBAL
BUSINESS SCHOOL Noida
Current Position
https://data.oecd.org/trade/trade-in-goods-and-services-
forecast.htm#indicator-chart
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