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  • Balance of Payment: BY, Nelcy Doshi ROLL NO-023

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    The document discusses balance of payments, which records a nation's international financial transactions over a year using double-entry bookkeeping. It includes receipts like exports and tourism spending, and payments like imports and foreign investments. Imbalances can occur if deficits are too large in areas like the current account, which covers trade in goods and services. Causes of imbalances include exchange rates, fiscal deficits, competitiveness, private behavior, and global savings. Nations can rebalance through adjusting exchange rates, internal prices, or demand.

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    BALANCE OF PAYMENT

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    The document discusses balance of payments, which records a nation's international financial transactions over a year using double-entry bookkeeping. It includes receipts like exports and tourism spending, and payments like imports and foreign investments. Imbalances can occur if deficits are too large in areas like the current account, which covers trade in goods and services. Causes of imbalances include exchange rates, fiscal deficits, competitiveness, private behavior, and global savings. Nations can rebalance through adjusting exchange rates, internal prices, or demand.

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    12 views7 pages

    Balance of Payment: BY, Nelcy Doshi ROLL NO-023

    Uploaded by

    anon_843795
    The document discusses balance of payments, which records a nation's international financial transactions over a year using double-entry bookkeeping. It includes receipts like exports and tourism spending, and payments like imports and foreign investments. Imbalances can occur if deficits are too large in areas like the current account, which covers trade in goods and services. Causes of imbalances include exchange rates, fiscal deficits, competitiveness, private behavior, and global savings. Nations can rebalance through adjusting exchange rates, internal prices, or demand.

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    of 7

    BALANCE OF PAYMENT

    BY,
    NELCY DOSHI
    ROLL NO-023
    Balance of Payments
    1. When countries trade money flows into and out of
    each country
    2. The accounts that record a nation’s international
    financial transactions are called its balance of
    payments (BP)
    3. Records all financial transactions between a country
    and the rest of the world over a year
    4. The BP is maintained on a double-entry bookkeeping
    system
    Balance of Payments
    The difference between receipts and payments

    BP Receipts
    BP Payments
    • costs of goods exported.
    • money spent by foreign
    • costs of goods imported.
    tourists.
    • spending by tourists abroad
    • transportation.
    • new overseas investments.
    • payments of dividends and
    interest from FDI abroad. • cost of foreign aid.
    • new foreign investments
    IMBALANCES
    •• While
    WhilethetheBOP
    BOPhashastotobalance
    balanceoverall,
    overall,surpluses
    surplusesorordeficits
    deficitson
    on
    its individual elements can lead to imbalances
    its individual elements can lead to imbalances between between
    countries.
    countries.InIngeneral
    generalthere
    thereisisconcern
    concernoveroverdeficits
    deficitsininthe
    the
    current
    currentaccount.
    account.Countries
    Countrieswith withdeficits
    deficitsinintheir
    theircurrent
    current
    accounts
    accountswill
    willbuild
    buildup
    upincreasing
    increasingdebtdebtand/or
    and/orsee seeincreased
    increased
    foreign
    foreign ownership of their assets. The types of deficitsthat
    ownership of their assets. The types of deficits that
    typically
    typicallyraise
    raiseconcern
    concernare are
    •• AAvisible
    visibletrade
    tradedeficit
    deficitwhere
    whereaanation
    nationisisimporting
    importingmore more
    physical
    physicalgoods
    goodsthan
    thanititexports
    exports(even
    (evenififthis
    thisisisbalanced
    balancedby bythe
    the
    other
    othercomponents
    componentsofofthe thecurrent
    currentaccount.)
    account.)
    •• An
    Anoverall
    overallcurrent
    currentaccount
    accountdeficit.
    deficit.
    •• AAbasic
    basicdeficit
    deficitwhich
    whichisisthethecurrent
    currentaccount
    accountplus plusforeign
    foreigndirect
    direct
    investment
    investment(but(butexcluding
    excludingother
    otherelements
    elementsofofthe thecapital
    capital
    account
    accountlike
    likeshort
    shortterms
    termsloans
    loansandandthethereserve
    reserveaccount.)
    account.)
    CAUSES OF IMBALANCES
    • Current account factors - these include the exchange rate, the
    government's fiscal deficit, business competitiveness , and
    private behavior such as the willingness of consumers to go
    into debt to finance extra consumption.
    • Capital account factors – where a global savings glut caused
    by savers in surplus countries, runs ahead of the available
    investment opportunities resulting in excess consumption and
    asset price inflation .
    Balancing Mechanisms

    •REBALANCING BY CHANGING
    EXCHANGE RATE
    •REBALANCING BY ADJUSTING
    INTERNAL PRICES AND DEMAND
    THANK YOU

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