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Balance of Payment

V/s
Balance of Trade
TEAM
Shubham Parsekar
Mohit Teja .M
Karan
Atul
Wendell
Meaning of Balance of Payment Account:

A Balance of Payment Account is a systematic record of all economic


transactions between residents of a country and the rest of the world
carried out in a specific period of time.
Features of Balance of Payment Account:

It is a systematic record of all economic transactions between one


country and the rest of the world.

It includes all transactions, visible as well as invisible.

It relates to a period of time. Generally, it is an annual statement.

It adopts a double-entry book-keeping system. It has two sides:


credit side and debit side. Receipts are recorded on the credit side
and payments on the debit side.
Components of Balance of Payment Account:
1. Current Account Balance
2. Capital Account Balance and other minor components like errors and Omissions and
changes in Foreign Exchange Reserves
Current Account

Transactions

Transportation
Merchandise , Insurance, Incomes Transfers
Miscellaneous
Capital Account:
Under Capital Account, capital inflows can be classified by instrument (debt or
equity) and maturity (short or long-term).

Capital Account

Foreign Loans Banking


Investments Capital

Commercial
FDI, FIIs,
borrowing, trade NRI Deposits
ADRs/GDRs
credit
Disequilibrium

Debit exceeds Credit or Credit exceeds Debit causing an


imbalance in the BOP a/c
Deficit: Our Receipts from foreigners fall below our
payment to foreigners. (Unfavourable)
Surplus: Receipts exceeds its Payment (Favourable)
Causes
Economic Factors
Imbalance between export & Import
New Source of supply & new substitutes
High Domestic Price
Political Factors
Instability & Disturbance cause large capital outflow.
Social Factors
Population Growth
Change in fashion
STEPS TO CORRECT BOP DEFICIT
Monetary measures
Non – monetary measures

I. Monetary measures.
 Deflation
 Devaluation of currency
 Exchange control
 Increase in Direct and Indirect Tax

II. Non Monetary measures


 1.Export promotion
 2. Import substitution
 3.Quota
Balance of Trade
The difference between a country's imports and its exports. Balance of
trade is the largest component of a country's balance of payments.
The items which include imports, foreign aid, domestic spending abroad
and domestic investments abroad comes under imports
The items which include exports, foreign spending in the domestic
economy and foreign investments in the domestic economy comes under
exports
When exports are greater than imports than the BOT is favorable and if
imports are greater than exports then it is unfavorable.
Favourable balance of trade indicates the good economic condition of
the country.
Factors Influencing Balance of Trade:

 Cost of Production
 Cost and Availability of Raw materials
 Exchange Rate movements
 Non-Tariff barriers such as environmental, health or
safety standards.
BASIS OF
BALANCE OF TRADE BALANCE OF PAYMENT
COMPARISON
Meaning Balance of Trade is a statement that captures Balance of Payment is a statement
the country's export and import of goods that keeps track of all economic
with the remaining world. transactions done by the country
with the remaining world.

Records Transactions related to goods only. Transactions related to both goods


and services are recorded.

Capital Transfers Are not included in the Balance of Trade.Are included in Balance of
Payment.
Which is better? It gives a partial view of the country's It gives a clear view of the
economic status. economic position of the country.

Result It can be Favorable, Unfavorable or Both the receipts and payment


balanced. sides tallies.
Component It is a component of Current Account of Current Account and Capital
Balance of Payment. Account.
Thank You