Balance of payments

Members:
Namrata Sakhare MMS-25
Bhagyashri chaudhari MMS-39
 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.
 Divided into..

Current account

Capital account
 Std components of BOP
CURRENT ACCOUNT
(+) Export fob
(-) Import fob
= Trade Balance
(+) Exports on Non-financial services
(-) Imports on Non-financial services
(+) Investment Income(Credit)
(-) Investment Income(Debit)
+(-) Private unrequited transfers
+(-) Official unrequited transfers
= Current Account balance
CAPITAL ACCOUNT
+(-) Direct Investment
+(-) Portfolio Investment
+(-) Other Long term Capital
+(-) Other Short term Capital
+(-) Net errors and omissions
+(-) Counterpart items
+(-) Total change in reserves
= Capital Account balance
 Current A/cTransactions

Merchandise Export fob

Merchandise Import fob
Export of a non-financial service
Investment Income: Export of a financial service
An unrequited Transfer
 Capital A/c Transactions

A reserve transaction with a non-resident

A reserve transaction with a resident
 Gold standard

Definition:
A commitment by participating countries to fix the
prices of their domestic currencies in terms of a
specified amount of gold. National money and
other forms of money(bank deposits & notes)
were freely converted into gold at the fixed price.
 Advantages

During war time emergencies govt. emphasizes

on purchasing gold standard which would be
helpful in post-war deflations.
The gold standard limits the power of govt. to
inflate prices through excessive issuance of
paper currency.
 Disadvantages

Gold standard means amount of money would

be determined by supply of gold & hence
monetary policy could no longer be used to
stabilize the economy in times of economic
recessions.
Monetary policy be determined by the rate of
gold production. Fluctuation in the amount of
gold that causes inflation if there is an increase
or deflation if there is a decrease.
 SDR

Special Drawing Rights are defined in terms of a

basket of major currencies used in international
trade & finance.
Why was the SDR created:-
The SDR was created by the IMF in 1969 to
support the Bretton Woods fixed exchange rate
system.
 Purpose

SDRs are used as a unit of account by the IMF

& several other international organization.
SDRs were originally created to replace gold &
silver in large international transactions.
 International liquidity

International Liquidity meant the relative amount

of resources available to a nation’s monetary
authorities that could be used to settle a balance
of payment deficit.
Thanks you!