BALANCE OF PAYMENTS

1. Meaning of Balance of Payments 2. Structure of Balance of Payments

1. Meaning of Balance of Payments

Balance of Payments or Balance of International Payments is a systematic record of all international economic transactions of the country with the rest of the world, during a given period of time, usually a year. Monetary transactions taking place amongst the countries are classified into the following types: Monetary transactions arising out of export & import of goods & services. Monetary transactions due to international borrowings & lendings. Monetary transactions due to unilateral transfers.

2. Structure of Balance of Payments

Balance of Payments of a country has the two main sections:A. Current Account Section ( Entries are Real Transactions) B. Capital Account Section ( Entries are Financial Transactions)

A. Current Account Section

Records receipts & payments arising from export & import of goods & services & also unilateral transfers.

Visible Account / Merchandise Trade Account:Part of Balance of Payments which records receipts & payments arising from of export & import of goods only. This is the Balance of Trade component of Balance of Payments.

2.

Invisible Account:- It consists of the following two accounts

Services Account- Part of Balance of Payments which records receipts & payments arising from of export & import of services. Unilateral Transfers Account / Gifts & Charities Account - It records all unilateral receipts & unilateral payments

B. Capital Account Section

Records all capital receipts & capital payments(Capital Transactions) of the country. It consists of four accounts:-

1.

Private Capital AccountRecords all capital transactions of private individuals & private firms in the form of real investments & portfolio investments.

2.
3. 4.

International Institutional Capital AccountRecords all short term & long term borrowings from IMF, IBRD, IFC etc.( Repayment of loans lead to outflow of capital)

Specie AccountRecords sale & purchase of gold bullions.

Government Capital AccountRecords all capital transactions of the government such as: short term & long term borrowings & lendings of the government sale & acquisition of assets by the government.