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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
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Balance of Payment(BOP)
BALANCE OF PAYMENT
Waqas Ahmed 10070621-044Umar Jalil 10070621-053Ali Irfan Shah 10070621-031
10070621-044WAQAS AHMED
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 + BRA = 0whereBCA = balance on current accountBKA = balance on capital accountBRA = balance on the reserves account
Under a pure flexible exchange rate regime,
BCA + BKA = 0
TYPES OF BALANCE OF PAYMENT The Balance of Payments statement
comprises four major categories
Current Account Capital Account Reserve Accounts Errors & Omissions
Current Account Includes all imports and exports of
goods 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.
10070621-053UMAR JALIL
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.
IMPORTANCE OF BALANCE OF PAYMENT It helps 1) State of International economic
relationship of country 2) A guide to its
monetary.fiscal.exchange & other polices.
3) Inform govt about the international economic position of the country, to assist in reaching decissions on the monetary and fiscal polices
The balance of payments analysis shows:-
whether it is paying for its import
through exporting goods, drawing down its foreign assests or receiving donations
DISEQUILIBRIUM IN THE BALANCE OF PAYMENTS
Types of BOP Disequilibrium: There are three main types of BOP
Disequilibrium which are discussed below: Cyclical Disequilibrium, Secular Disequilibrium, Structural Disequilibrium.
General Measures to Correct BOP DisequilibriumTo correct the different types of disequilibrium in BOP the following general measures are used:Exchange depreciation (price effect) or devaluation (by government)Deflate the currencyTariffsImport quotasExport duties
10070621-031ALI IRFAN SHAH
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 GROWTHa) Instead Of exporting Raw material
should export Finished Goodsb) Reduction in Export Dutiesc) Export Quality Products
MEASURES TO CORRECT ADVERSE BALANCE OF PAYMENT
• REDUCTION IN IMPORTS
a) Import of Only Essential Itemsb) Exchange Controlc) Substitutes for Imported Items
MEASURES TO CORRECT ADVERSE BALANCE OF PAYMENT
MISCELLANEOUS
a) Population Control
b) Decrease in Consumption
c) Control of Smuggling
THANKS