BOP structure

1. Balance of Payments
Structure of BOP

2. The Equation
Balance on the Current Account
=
Balance on the Capital and Financial
Account

3. The Current Account
The Current Account is used to collect
together the value of:
Net goods
Net services
(Balance on goods and services)
Net Primary Income
Net Secondary Income (Current
Transfers)

4. Net Goods
NET Goods = Exports of Goods - Imports of
Goods

5. Net Services
Net Services = Exports of Services -
Imports of Services

6. Net Primary Income
Net Primary Income = Income Credits -
Income Debits
Interest received from foreign
firms.
Profits of Australian firms
earned offshore;
Dividends
Undistributed profits
Payments to offshore
employees
Interest paid to foreign firms.
Profits of foreign firms in
Australia;
Dividends
Undistributed profits
Payments to offshore
employees
CreditsDebits

7. Net Secondary Income
Net Secondary Income = Secondary
Income Credits - Secondary Income
Debits
Secondary Income (current transfers) or non-commercial
payments which could be thought as gifts in the form of:
 Worker remittances to overseas people or to
Australian
 Foreign aid (non-conditional (tied) aid)
 Gifts to charities
Until September 2009 this was known as Current Transfers

8. The Capital Account
Capital Transfers
Capital Transfers is made up of two
parts.
sCapital Transfers in the form of
“Conditional” or “Tied” foreign aid.
Purchase and sale of non-produced,
non-financial assets.

9. Financial Account
The Financial Account is made up of:
Direct Investment
Portfolio Investment
Financial Derivatives
Other Investments
Reserve Assets

10. Direct Investment
Which includes equity funds (gaining
ownership rights) or debts funds
(loans). Direct investment can be made
by both Australians buying assets
abroad or lending to firms offshore
which they control or by foreigners
buying assets in Australia or lending to
firms in Australia which they control.

11. Portfolio Investment
Commercial deals involving savings
movements across national borders
into assets which do not give the
provider of the savings significant
control of the user of these savings,
e.g.
Equity securities (Shares)
Debt securities (T-Bonds, T-Notes,
Debentures)

12. Financial Derivatives
Financial derivatives such as interest
rate swaps, futures and options.

13. Other Investments
Commercial deals involving savings that
are not based on securities or do not
give significant control or involve
affiliated companies, The main types
of other investments are:
eTrade Credit
eLoans made to intermediaries
tCurrency and deposits

14. Reserve Assets
Reserve assets are offshore holdings of
mainly foreign currencies that the
RBA may have either on deposit with
overseas ADIs. These may include
hGold holdings
hSpecial drawing rights
rThe reserve position at the IMF

15. Calculating the Balance on Capital and Financial
Account
Capital Transfer credits - Capital transfer debits =
Balance on Capital Account
Net Direct Investment inflow + Net Portfolio Investment
inflow + Net Other Investment Inflow + Net Change in
Reserve Assets = Net Financial Inflow or Financial
Balance
Balance on Capital Account + Financial Account Balance
= Balance on Capital and Financial Account