WHAT IS BOP

The balance of a payment is a systematic

record of all its monetary transactions with
other countries of the world in a given period
of time .e.g 1 year
When we say a countrys balance of
payments we are referring to the
transactions of its citizens and government
BALANCE OF TRADE VS
BALANCE OF PAYMENT

The balance of trade The balance of

takes into account all payment takes into
the trade transactions account all the
with the rest of transactions with the
worlds rest of worlds
Balance of trade Balance of payment
BCA+BKA+BRA=0
WHER
BCA=balance on current account
BKA=balance on capital account
BRA=balance on the reserves account
Under a pure flexible exchange rate regime
BCA+BKA=0
TYPES OF BALANCE OF
PAYMENTS
The balance of payment statement comprises
four major categories
Current account
Capital account
Reserves account
Errors or omissions
CURRENT ACCOUNT
Includes all imports and exports
of good and services
Includes unilateral transfers of foreign aid
If the debits exceed the credits , then a
country is running a trade deficit
If the credits exceed the debits, then a
country is running a trade surplus
CAPITAL ACCOUNT
On receipts side,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
RESERVE ACCOUNT
It shows the foreign exchange position of a
country
Official reserves account has the record of
foreign official holding and increase reserves
of gold and foreign currencies
ERRORS AND OMISSIONS
The entries under this head relate mainly to
leads and lags in reporting of transactions
It is a balancing entry and is needed to offset
the overstated components
IMPORTANTS OF BALANCE OF
PAYMENT
It helps
1)state of international economic
relationship of country
A guide of its monetary.fiscal.exchange and
other policies
3)inform government about the international
economic positions of the country, to assist
in reaching decisions on the monetary and
fiscal policies
THE BALANCE OF PAYMENT
ANALYSIS SHOWS:-
Whether it is paying for its import through
exporting goods,drawing down its foreign
assets or receiving donations