DEFINITION OF 'BALANCE OF PAYMENTS (BOP)'

A statement that summarizes an economys transactions with the rest of the

world for a specified time period. The balance of payments, also known as
balance of international payments, encompasses all transactions between a
countrys residents and its nonresidents involving goods, services and
income; financial claims on and liabilities to the rest of the world; and
transfers such as gifts. The balance of payments classifies these
transactions in two accounts the current account and the capital account.
The current account includes transactions in goods, services, investment
income and current transfers, while the capital account mainly includes
transactions in financial instruments. An economys balance of payments
transactions and international investment position (IIP) together constitute
its set of international accounts.
Despite its name, the balance of payments data is not concerned with
actual payments made and received by an economy, but rather with
transactions. Since many international transactions included in the balance
of payments do not involve the payment of money, this figure may differ
significantly from net payments made to foreign entities over a period of
time.
In theory, a current account deficit would have to be financed by a net
inflow in the capital and financial account, while a current account surplus
should correspond to an outflow in the capital and financial account for a
net figure of zero. In actual practice, however, the fact that data are
compiled from multiple sources gives rise to some degree of measurement
error.
Balance of payments and international investment position data are critical
in formulating national and international economic policy. Certain aspects
of the balance of payments data, such as payment imbalances and foreign
direct investment, are key issues that a nations economic policies seek to
address.
Economic policies are often targeted at specific objectives that, in turn,
impact the balance of payments. For example, a country may adopt
policies specifically designed to attract foreign investment in a particular
sector. Another nation may attempt to keep its currency at an artificially
depressed level to stimulate exports and build up its currency reserves. The
impact of these policies is ultimately captured in the balance of payments
data.

DEFINITION OF 'BALANCE OF TRADE - BOT'

The difference between a country's imports and its exports. Balance of
trade is the largest component of a country's balance of payments. Debit
items include imports, foreign aid, domestic spending abroad and domestic
investments abroad. Credit items include exports, foreign spending in the
domestic economy and foreign investments in the domestic economy. A
country has a trade deficit if it imports more than it exports; the opposite
scenario is a trade surplus.
Also referred to as "trade balance" or "international trade balance."
INVESTOPEDIA EXPLAINS 'BALANCE OF TRADE - BOT'
The balance of trade is one of the most misunderstood indicators of the
U.S. economy. For example, many people believe that a trade deficit is a
bad thing. However, whether a trade deficit is bad thing is relative to the
business cycle and economy. In a recession, countries like to export more,
creating jobs and demand. In a strong expansion, countries like to import
more, providing price competition, which limits inflation and, without
increasing prices, provides goods beyond the economy's ability to meet
supply. Thus, a trade deficit is not a good thing during a recession but may
help during an expansion.

DEFINITION OF 'DEFICIT'
The amount by which expenses exceed income or costs outstrip revenues.
Deficit essentially refers to the difference between cash inflows and
outflows. It is generally prefixed by another term to refer to a specific
situation - trade deficit or budget deficit, for example. Deficit is the
opposite of "surplus" and is synonymous with shortfall or loss.
INVESTOPEDIA EXPLAINS 'DEFICIT'
For example, if a nation has exports of $2 billion and imports of $3 billion
in a given year, it would have a trade deficit of $1 billion for that year.
Similarly, a government that has revenues of $10 billion and expenditures
of $12 billion in a particular year would have a budget deficit of $2 billion
in that period.
Large and growing deficits over prolonged periods of time are
unsustainable in most cases, irrespective of whether they are incurred by
an individual, corporation or government. Huge deficits over a number of
years can wipe out equity for an individual or a company's shareholders,
eventually leaving bankruptcy as the only option. Although sovereign
governments have a much greater capacity to sustain deficits, negative
effects in such cases include lower economic growth rates (in case of
budget deficits) or a plunge in the value of the domestic currency (in case
of trade deficits).

DEFINITION OF 'FISCAL DEFICIT'

When a government's total expenditures exceed the revenue that it
generates (excluding money from borrowings). Deficit differs from debt,
which is an accumulation of yearly deficits.
INVESTOPEDIA EXPLAINS 'FISCAL DEFICIT'
A fiscal deficit is regarded by some as a positive economic event. For
example, economist John Maynard Keynes believed that deficits help
countries climb out of economic recession. On the other hand, fiscal
conservatives feel that governments should avoid deficits in favor of a
balanced budget policy.

DEFINITION OF 'REVENUE DEFICIT'

When the net amount received (revenues less expenditures) falls short of
the projected net amount to be received. This occurs when the actual
amount of revenue received and/or the actual amount of expenditures do
not correspond with predicted revenue and expenditure figures. This is the
opposite of a revenue surplus, which occurs when the actual amount
exceeds the projected amount.
INVESTOPEDIA EXPLAINS 'REVENUE DEFICIT'
For example, consider an organization with budgeted revenue of $325,000
and budgeted expenditures of $200,000, which equates to a net amount of
$125,000. During the fiscal year, the organization's total revenue is
actually $300,000, while its total expenditure is $195,000. The net amount
received by the organization is $105,000, which is $20,000 less than the
projected receipt of $125,000. Therefore, although the organization
generated a positive net amount of proceeds, it fell short of the projected
amount, creating a revenue deficit.

DEFINITION OF 'GROSS DOMESTIC PRODUCT - GDP'

The monetary value of all the finished goods and services produced within
a country's borders in a specific time period, though GDP is usually
calculated on an annual basis. It includes all of private and public
consumption, government outlays, investments and exports less imports
that occur within a defined territory.
GDP = C + G + I + NX
where:
"C" is equal to all private consumption, or consumer spending, in a
nation's economy"G" is the sum of government spending"I" is the sum of
all the country's businesses spending on capital"NX" is the nation's total
net exports, calculated as total exports minus total imports. (NX = Exports
- Imports)
INVESTOPEDIA EXPLAINS 'GROSS DOMESTIC PRODUCT - GDP'
GDP is commonly used as an indicator of the economic health of a
country, as well as to gauge a country's standard of living. Critics of using
GDP as an economic measure say the statistic does not take into account
the underground economy - transactions that, for whatever reason, are not
reported to the government. Others say that GDP is not intended to gauge
material well-being, but serves as a measure of a nation's productivity,
which is unrelated.

DEFINITION OF 'GROSS DOMESTIC INCOME - GDI'

The sum of all income earned while producing goods and services within a
nation's borders. Gross domestic income (GDI) is a lesser-known
calculation stat used by the Federal Reserve to gauge economic activity
based on income. It differs from gross domestic product (GDP), which
gauges economic activity on expenditure.
GDI is calculated as the total income payable in GDP income accounts. It
can be calculated in two ways:
1. GDI = compensation of employees + gross operating surplus + gross
mixed income + taxes subsidies on production and imports
Compensation of employees encompasses the total compensation to
employees for services rendered. Gross operating surplus, also known as
profits, refers to the surpluses of incorporated businesses. Gross mixed
income is the same as gross operating surplus, but for unincorporated
businesses.
2. GDI = rental income + interest income + profits + wages + statistical
adjustments
Statistical adjustments may include corporate income tax, dividends and
undistributed profits.
INVESTOPEDIA EXPLAINS 'GROSS DOMESTIC INCOME - GDI'
Theoretically, GDI should equal GDP; however, because GDP is
calculated based on expenditure accounts, a difference usually exists. The
market value of goods and services consumed often differs, because of
measurement errors, from the amount of income earned to produce them.

DEFINITION OF 'FISCAL POLICY'

Government spending policies that influence macroeconomic conditions.
Through fiscal policy, regulators attempt to improve unemployment rates,
control inflation, stabilize business cycles and influence interest rates in an
effort to control the economy. Fiscal policy is largely based on the ideas of
British economist John Maynard Keynes (18831946), who believed
governments could change economic performance by adjusting tax rates
and government spending.
INVESTOPEDIA EXPLAINS 'FISCAL POLICY'
To illustrate how the government could try to use fiscal policy to affect the
economy, consider an economy thats experiencing a recession. The
government might lower tax rates to try to fuel economic growth. If people
are paying less in taxes, they have more money to spend or invest.
Increased consumer spending or investment could improve economic
growth. Regulators dont want to see too great of a spending increase
though, as this could increase inflation.
Another possibility is that the government might decide to increase its own
spending say, by building more highways. The idea is that the additional
government spending creates jobs and lowers the unemployment rate.
Some economists, however, dispute the notion that governments can create
jobs, because government obtains all of its money from taxation in other
words, from the productive activities of the private sector.
One of the many problems with fiscal policy is that it tends to affect
particular groups disproportionately. A tax decrease might not be applied to
taxpayers at all income levels, or some groups might see larger decreases
than others. Likewise, an increase in government spending will have the
biggest influence on the group that is receiving that spending, which in the
case of highway spending would be construction workers.
Fiscal policy and monetary policy are two major drivers of a nations
economic performance. Through monetary policy, a countrys central bank
influences the money supply. Regulators use both policies to try to boost a
flagging economy, maintain a strong economy or cool off an overheated
economy.

DEFINITION OF 'MONETARY POLICY'

The actions of a central bank, currency board or other regulatory
committee that determine the size and rate of growth of the money supply,
which in turn affects interest rates. Monetary policy is maintained through
actions such as increasing the interest rate, or changing the amount of
money banks need to keep in the vault (bank reserves).
INVESTOPEDIA EXPLAINS 'MONETARY POLICY'
In the United States, the Federal Reserve is in charge of monetary policy.
Monetary policy is one of the ways that the U.S. government attempts to
control the economy. If the money supply grows too fast, the rate of
inflation will increase; if the growth of the money supply is slowed too
much, then economic growth may also slow. In general, the U.S. sets
inflation targets that are meant to maintain a steady inflation of 2% to 3%.

DEFINITION OF 'INFLATION'
The rate at which the general level of prices for goods and services is
rising, and, subsequently, purchasing power is falling. Central banks
attempt to stop severe inflation, along with severe deflation, in an attempt
to keep the excessive growth of prices to a minimum.
INVESTOPEDIA EXPLAINS 'INFLATION'
As inflation rises, every dollar will buy a smaller percentage of a good. For
example, if the inflation rate is 2%, then a $1 pack of gum will cost $1.02
in a year.
Most countries' central banks will try to sustain an inflation rate of 2-3%.

DEFINITION OF 'DEFLATION'
A general decline in prices, often caused by a reduction in the supply of
money or credit. Deflation can be caused also by a decrease in
government, personal or investment spending. The opposite of inflation,
deflation has the side effect of increased unemployment since there is a
lower level of demand in the economy, which can lead to an economic
depression. Central banks attempt to stop severe deflation, along with
severe inflation, in an attempt to keep the excessive drop in prices to a
minimum.
The decline in prices of assets, is often known as Asset Deflation.
INVESTOPEDIA EXPLAINS 'DEFLATION'
Declining prices, if they persist, generally create a vicious spiral of
negatives such as falling profits, closing factories, shrinking employment
and incomes, and increasing defaults on loans by companies and
individuals. To counter deflation, the Federal Reserve (the Fed) can use
monetary policy to increase the money supply and deliberately induce
rising prices, causing inflation. Rising prices provide an essential lubricant
for any sustained recovery because businesses increase profits and take
some of the depressive pressures off wages and debtors of every kind.
Deflationary periods can be both short or long, relatively speaking. Japan,
for example, had a period of deflation lasting decades starting in the early
1990's. The Japanese government lowered interest rates to try and
stimulate inflation, to no avail. Zero interest rate policy was ended in July
of 2006.

DEFINITION OF 'REVALUATION'
A calculated adjustment to a country's official exchange rate relative to a
chosen baseline. The baseline can be anything from wage rates to the price
of gold to a foreign currency. In a fixed exchange rate regime, only a
decision by a country's government (i.e. central bank) can alter the official
value of the currency. Contrast to "devaluation".
INVESTOPEDIA EXPLAINS 'REVALUATION'
For example, suppose a government has set 10 units of its currency equal
to one U.S. dollar. To revalue, the government might change the rate to
five units per dollar. This would result in that currency being twice as
expensive to people buying that currency with U.S. dollars than previously
and the U.S. dollar costing half as much to those buying it with foreign
currency.
Before the Chinese government revalued the yuan, it was pegged to the
U.S. dollar. It is now pegged to a basket of world currencies.

DEFINITION OF 'DEVALUATION'
A deliberate downward adjustment to the value of a country's currency,
relative to another currency, group of currencies or standard. Devaluation
is a monetary policy tool of countries that have a fixed exchange rate or
semi-fixed exchange rate. It is often confused with depreciation, and is in
contrast to revaluation.
INVESTOPEDIA EXPLAINS 'DEVALUATION'
Devaluating a currency is decided by the government issuing the currency,
and unlike depreciation, is not the result of non-governmental activities.
One reason a country may devaluate its currency is to combat trade
imbalances. Devaluation causes a country's exports to become less
expensive, making them more competitive on the global market. This in
turn means that imports are more expensive, making domestic consumers
less likely to purchase them.
While devaluating a currency can seem like an attractive option, it can
have negative consequences. By making imports more expensive, it
protects domestic industries who may then become less efficient without
the pressure of competition. Higher exports relative to imports can also
increase aggregate demand, which can lead to inflation.

DEFINITION OF 'APPRECIATION'
An increase in the value of an asset over time. The increase can occur for a
number of reasons including increased demand or weakening supply, or as
a result of changes in inflation or interest rates. This is the opposite of
depreciation, which is a decrease over time.
INVESTOPEDIA EXPLAINS 'APPRECIATION'
This term can be used to refer to an increase in any type of asset such as a
stock, bond, currency or real estate. For example, the term capital
appreciation refers to an increase in the value of financial assets such as
stocks, which can occur for reasons such as improved financial
performance of the company.
The term is also used in accounting when referring to an upward
adjustment of the value of an asset held on a company's accounting books.
The most common adjustment on the value of an asset in accounting is
usually a downward one, known as depreciation, which is typically done
as the asset loses economic value through use, such as a piece of
machinery being used over its useful life. While appreciation of assets in
accounting is less frequent, assets such as trademarks may see an upward
value revision due to increased brand recognition.

Depreciation
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DEFINITION OF 'DEPRECIATION'
1. A method of allocating the cost of a tangible asset over its useful life.
Businesses depreciate long-term assets for both tax and accounting
purposes.
2. A decrease in an asset's value caused by unfavorable market conditions.
INVESTOPEDIA EXPLAINS 'DEPRECIATION'
1. For accounting purposes, depreciation indicates how much of an asset's
value has been used up. For tax purposes, businesses can deduct the cost of
the tangible assets they purchase as business expenses; however,
businesses must depreciate these assets in accordance with IRS rules about
how and when the deduction may be taken based on what the asset is and
how long it will last.
Depreciation is used in accounting to try to match the expense of an asset
to the income that the asset helps the company earn. For example, if a
company buys a piece of equipment for $1 million and expects it to have a
useful life of 10 years, it will be depreciated over 10 years. Every
accounting year, the company will expense $100,000 (assuming straightline depreciation), which will be matched with the money that the
equipment helps to make each year.
2. Currency and real estate are two examples of assets that can depreciate
or lose value. During the infamous Russian ruble crisis in 1998, the ruble
lost 25% of its value in one day. During the housing crisis of 2008,
homeowners in the hardest-hit areas, such as Las Vegas, saw the value of
their homes depreciate by as much as 50%.

open economy
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Market-economy mostly free from trade barriers and where exports and
imports form a large percentage of the GDP. No economy is totally open or
closed in terms of trade restrictions, and all governments have varying
degrees of control over movements of capital and labor. Degree of
openness of an economy determines a government's freedom to pursue
economic policies of its choice, and the susceptibility of the country to
international economic cycles. In terms of the percentage of the GDP
dependent on foreign trade, the UK is a more open economy than the US.

DEFINITION OF 'CLOSED ECONOMY'

An economy in which no activity is conducted with outside economies. A
closed economy is self-sufficient, meaning that no imports are brought in
and no exports are sent out. The goal is to provide consumers with
everything that they need from within the economy's borders.
A closed economy is the opposite of an open economy, in which a country
will conduct trade with outside regions.
INVESTOPEDIA EXPLAINS 'CLOSED ECONOMY'
Closed economies are more likely to be less developed if they lack internal
sources of some raw materials, such as oil, gas and coal.
Due to the prevalence of international trade, truly closed economies are
rare. Even governments that seek to limit the political or cultural
influences of the outside world are likely to trade with other economies on
some scale.

In general, liberalization (or liberalisation) refers to a relaxation of

previous government restrictions, usually in such areas of social, political
and economic policy. In some contexts this process or concept is often, but
not always, referred to as deregulation.[1] Liberalization of autocratic
regimes may precede democratization (or not, as in the case of the Prague
Spring).

DEFINITION OF 'GLOBALIZATION'
The tendency of investment funds and businesses to move beyond
domestic and national markets to other markets around the globe, thereby
increasing the interconnectedness of different markets. Globalization has
had the effect of markedly increasing not only international trade, but also
cultural exchange.
INVESTOPEDIA EXPLAINS 'GLOBALIZATION'
The advantages and disadvantages of globalization have been heavily
scrutinized and debated in recent years. Proponents of globalization say
that it helps developing nations "catch up" to industrialized nations much
faster through increased employment and technological advances. Critics
of globalization say that it weakens national sovereignty and allows rich
nations to ship domestic jobs overseas where labor is much cheaper.

DEFINITION OF 'PRIVATIZATION'
1. The transfer of ownership of property or businesses from a government
to a privately owned entity.
2. The transition from a publicly traded and owned company to a company
which is privately owned and no longer trades publicly on a stock
exchange. When a publicly traded company becomes private, investors can
no longer purchase a stake in that company.
INVESTOPEDIA EXPLAINS 'PRIVATIZATION'
1. One of the main arguments for the privatization of publicly owned
operations is the estimated increases in efficiency that can result from
private ownership. The increased efficiency is thought to come from the
greater importance private owners tend to place on profit maximization as
compared to government, which tends to be less concerned about profits.
2. Most companies start as private companies funded by a small group of
investors. As they grow in size, they will often access the equity market for
financing or ownership transfer through the sale of shares. In some cases,
the process is subsequently reversed when a group of investors or a private
company purchases all of the shares in a public company, making the
company private and, therefore, removing it from the stock market.

DEFINITION OF 'LEAKAGE'
A situation in which capital, or income, exits an economy, or system,
rather than remains within it. In economics, leakage refers to outflow from
a circular flow of income model. In a two sector model, all individual
income is sent back to employers when goods and services are purchased,
and back to employees through wages and dividends. Leakage occurs
when income is taken out through taxes, savings and imports. In retail,
leakage refers to consumers who spend money outside of the local market.
Leakage may also refer to the release of private information prior to it
being released to the public.

What is the Full Form of PSU ?

PSU - Public Sector Undertaking
Public Sector Undertakings is an entity created by Government of India to
undertake the commercial work under the banner of its own. These
companies are less concerned with making profits, but more towards
nation building and growing the country's economy.
Public Sector Undertakings can be classified into 3 categories :
Public Sector Enterprises (PSEs)
Central Public Sector Enterprises (CPSEs)
Public Sector Banks (PSBs)
Some of the most renowned PSUs of India are :Bharat Electronics Ltd.
Bharat Heavy Electricals Ltd.
Bharat Petroleum Corpn. Ltd.
Bharat Refractories Ltd.
Coal India Ltd.
Oil & Natural Gas Corporation Ltd.
Oil India Ltd.
ONGC Videsh Ltd.
Oriental Insurance Company
Power Grid Corporation Of India Ltd.