2. INTRODUCTION TO BOP
BOP is an accounting systemthat records
the economictransaction betweenthe
residence & government of the particular
country annually.
3. DEFINITION“The Balance Of Payments of a country is a systematic
record of all economic transactions between the
‘residents’ of a country and the rest of the world. It
presents a classified record of all receipts on account of
goods exported, services rendered and capital received
by ‘residents’ and payments made by them on account of
goods imported and services received from the capital
transferred to ‘non-residents’ or ‘foreigners’.” – Reserve
Bank of India (RBI)
4. BALANCE OF PAYMENT ACCOUNTING
BOP follows the principle of double entry
system, which means every international
transactions produces debit & credit entries of
equal magnitude.
But it is neither an income statement nor an
balance sheet.
It is a sources & uses of funds statement that
reflects changes in assets & liabilities & net
worth during a specific period of time.
5. ASSETS LIABILITIES OR
NET WORTH
REPRESENTS
Decrease Increase Cr Fund / Sources of
fund
Increase Decrease Dr Fund / Uses of
fund
6. Sources of fund includes ;
export of goods& services
investment & interest earning
unilateral transfer received fromabroad & loans
fromforeigners.
Uses of fund includes ;
imports of goods& services
dividendpaidto foreign investors
transfer payment abroad & loans to foreigners
increase in reserve assets.
7. Therefore BOP accounts shows the size of any
surplus or deficit , which a nation can have and
also indicate the manner in which a deficit was
financed or the proceeds of a surplus invested.
EXPENDITURE & RECIEPTS
Expenditure > Receipts
Expenditure < Receipts
REPRESENTS
Deficit
Surplus
8. IMPORTANCE OF BOP
The BoP is an important indicator of pressure on
a country’s foreign exchange rate .
The BOP helps to forecast a country’s market
potential, especially in the short run.
Changes in a country’s BOP may signal the
imposition or removal of controls over payment
of dividends and interest, license fees, royalty
fees, or other cash disbursements to foreign
firms or investors.
9. CONTENTS OF BOP
Current account
Capital account
Financial account
Net errors and omissions account
Reserves and related items:
official reserve account
10. CURRENT ACCOUNT
Net export/import of goods (trade balance)
Net export/import of services
Net income (investment income from direct and
portfolio investment plus employee compensation)
Net transfers (sums sent home by migrants and
permanent workers aboard, gifts, grants and
pensions)
