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Balance of Payments: Presented by Shamroze Sajid

The balance of payments is used by countries to monitor all international monetary transactions within a specific time period, usually quarterly or annually. It accounts for all trades conducted by the private and public sectors to determine how much money is flowing in and out of a country. The overall balance is calculated from the current account, capital account, financial account, and errors and omissions. The current account tracks trade in goods, services, income flows, and transfers. The capital account covers asset transactions. The financial account records investment flows. Errors and omissions balance any missing data. A balanced or surplus BOP is ideal, while a deficit may require corrective policies like export promotion or import substitution.

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Aejaz Mohamed
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142 views

Balance of Payments: Presented by Shamroze Sajid

The balance of payments is used by countries to monitor all international monetary transactions within a specific time period, usually quarterly or annually. It accounts for all trades conducted by the private and public sectors to determine how much money is flowing in and out of a country. The overall balance is calculated from the current account, capital account, financial account, and errors and omissions. The current account tracks trade in goods, services, income flows, and transfers. The capital account covers asset transactions. The financial account records investment flows. Errors and omissions balance any missing data. A balanced or surplus BOP is ideal, while a deficit may require corrective policies like export promotion or import substitution.

Uploaded by

Aejaz Mohamed
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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BALANCE OF PAYMENTS

PRESENTED BY
SHAMROZE SAJID
BALANCE OF PAYMENTS

• The balance of payments (BOP) is the method countries use to


monitor all international monetary transactions at a specific
period of time. Usually, the BOP is calculated every quarter and
every calendar year.

• All trades conducted by both the private and public sectors are
accounted for in the BOP in order to determine how much money
is going in and out of a country.
HOW TO CALCULATE BALANCE OF
PAYMENTS ??

• OVERALL BALANCE = CURRENT A/C + CAPITAL A/C + FINANCIAL


A/C + ERRORS & OMISSION
CURRENT ACCOUNT
This is a record of all payments for trade in goods and services plus
income flow it is divided into four parts.

• Balance of trade in goods (visible)


• Balance of trade in services (invisibles) e.g. tourism, insurance
• Net income flows (wages and investment income)
• Net current transfers (e.g. Government AID)
CAPITAL ACCOUNT

• Capital transfers related to purchase and sale of fixed


assets.
• For example, a physical asset such as land) and non-
produced assets, which are needed for production but
have not been produced, like a mine used for the
extraction of diamonds.
FINANCIAL ACCOUNT
This is a record of all transactions for financial investment. It
includes:

• Net investment from abroad. (e.g. A UK firm buying a factory in


Japan would be a debit item)
• Net portfolio investment.
• Reserves.
Errors and Omission
• Missing data such as illegal transfers.
• It is of a balancing entry and is needed to offset
the overstated or understated components.
• Account is used to account for statistical errors
and/or untraceable moneys within a country.
BALANCE OF TRADE
• The balance of trade, is the difference in value between the total exports &
total imports of a nation during a specific period of time.

• CALCULATION
NX = Net Exports – Net Imports

• A Positive balance is kwon as trade surplus. A Negative balance is kwon as a


trade deficit
IMPORTANCE OF BALANCE OF PAYMENTS

• State of International economic relationship of country


• A guide to its monetary, fiscal, exchange polices.
• Inform govt about the international economic position of the
country, to assist in reaching decisions on the monetary and
fiscal polices
FACTORS AFFECTING BALANCE OF
PAYMENTS

• High rate of consumer spending on imports (during economic boom).


• Decline in international competitiveness making countries exports less
competitive.
• Overvalued exchange rates which makes exports relatively more expensive.
What Balance of Payments Analysis
Show ?

whether it is paying for its import through


exporting goods, drawing down its foreign
assets or receiving donations.
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
BALANCE OF PAYMENT

• 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


• Instead of exporting Raw material should export Finished Goods.
• Reduction in Export Duties.
• Export Quality Products.
MEASURES TO CORRECT ADVERSE
BALANCE OF PAYMENT

REDUCTION IN IMPORTS

• Import of Only Essential Items


• Exchange Control
• Substitutes for Imported Items
MEASURES TO CORRECT ADVERSE
BALANCE OF PAYMENT
Miscellaneous

• Population Control
• Improved Law & Order Situation
• Control of smuggling
• Capital Formation
• Power development
• Building of infrastructure
Food For Thought

18

THANK YOU

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