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 .The balance of a payment is a systematic record of all its monetary transections with other countries of the world in a given period of time. i.e 1 year when we say “a country’s balance of payments” we are referring to the transactions of its citizens and government.

Balance of Trade V/s Balance of Payment The Balance of Payment takes into account all the transaction with the rest of the worlds The Balance of Trade takes into account all the trade transaction with the rest of the worlds .

BCA + BKA = 0 .BCA + BKA + BRA = 0 where BCA = balance on current account BKA = balance on capital account BRA = balance on the reserves account Under a pure flexible exchange rate regime.

TYPES OF BALANCE OF PAYMENT The Balance of Payments statement comprises four major categories Current Account Capital Account Reserve Accounts Errors & Omissions .

then a country is running a trade surplus. Includes unilateral transfers of foreign aid. . If the credits exceed the debits. If the debits exceed the credits.Current Account Includes all imports and exports of goods and services. then a country is running a trade deficit.

. short term and long-term capital inflow receipts of foreign direct investment and foreign debts are posted Same items are written in payment side while making payment.Capital Account on receipts side.

Reserve Accounts It shows the foreign exchange position of a country Official reserve account has the records of foreign official holding and increase reserves of gold and foreign currencies .

Errors & Omissions The entries under this head relate mainly to leads and lags in reporting of transactions It is of a balancing entry and is needed to offset the overstated or understated components.  .


exchange & other polices. to assist in reaching decissions on the monetary and fiscal polices .fiscal.IMPORTANCE OF BALANCE OF PAYMENT It helps 1) State of International economic relationship of country 2) A guide to its monetary. 3) Inform govt about the international economic position of the country.

drawing down its foreign assests or receiving donations .The balance of payments analysis shows:whether it is paying for its import through exporting goods.

DISEQUILIBRIUM IN THE BALANCE OF PAYMENTS A disequilibrium in the balance of payment means its condition of Surplus Or deficit .

CAUSES OF DISEQUILIBRIUM IN THE BOP Cyclical fluctuations Short fall in the exports Economic Development Rapid increase in population Structural Changes Natural Calamites International Capital Movements .

MEASURES TO CORRECT ADVERSE BALANCE OF PAYMENT EXPORT LED GROWTH a)Instead Of exporting Raw material should export Finished Goods b)Reduction in Export Duties c)Export Quality Products .

MEASURES TO CORRECT ADVERSE BALANCE OF PAYMENT • REDUCTION IN IMPORTS a)Import of Only Essential Items b)Exchange Control c)Substitutes for Imported Items .

MEASURES TO CORRECT ADVERSE BALANCE OF PAYMENT MISCELLANEOUS a)Population b)Decrease c)Control Control in Consumption of Smuggling .