BALANCE OF PAYMENTS - IMPORTANT DETAILS
Essential for All Upcoming Bank Exams
- A statement that outline an economy's transaction with rest of the world is known as 'Balance of Payments'(BoP).
- The ‘Balance of Payments’, also known as ‘Balance of International Payments’, enclose all transactions between a country’s residents and its nonresidents involving goods, services and income; financial claims on and liabilities to the rest of the world; and transfers such as gifts.
- It shows the difference between foreign exchange and debit and credit balance foreign currency in different divisions, where credit balance shows the foreign exchange receipt from abroad, where the double entry book is based on the concept of concepts and debit balance.
- Receipts and payments are divided into two heads namely current account and capital account.
Current Account Transaction:
Export of Goods –
- It effects flow of foreign exchange into the country while import of goods causes outflow of foreign exchange from the country.
- The difference between the import and export is known as the Balance of Trade.
- If export exceeds import, balance of trade turns surplus while excess of import over export results in a deficit balance of trade.
It includes receipts and payments on account of –
- Investment income such as interest and dividend.
- Trade in services such as travel and tourism, transport etc.
- Unilateral transfer.
Movement of gold may be monetary or Non-monetary –
Monetary movement is the sale or purchase that influences the international monetary reserves. Non-financial sales and purchasing of gold are intended for industrial purposes which are displayed in the current account or trade with trade separately.
Capital Account Transaction:
The impact of the global financing crisis through the financial channel was reflected in the sharp turnaround in the capital flow cycle from sustained phase of surges in flows to large outflows.
The adverse impact of the global financing market turmoil was reflected in lower capital inflows during 2008-09.