Chapter 12 Balance of Payments
Balance of Payments
Meaning: BOP is an accounting statement that provides a systematic record of all the economics transaction between resides of a country and the rest of the world in a given period of time.
- It records flow of goods, services, & capital
- BOP Account is always Balanced
Current Account
Meaning: It is an account which records imports & exports of goods, services and also the unilateral transfer during a year.
Meaning: It is an account which records imports & exports of goods, services and also the unilateral transfer during a year.
Components of current Account
1. Export & Import of goods
2. Export & Import of services
3. Unilateral transfers
1. Export & Import of goods
2. Export & Import of services
3. Unilateral transfers
Capital Account
Meaning: It records are such transactions between residents of a country & rest of the world which affect the assets & liabilities of a nation.
Meaning: It records are such transactions between residents of a country & rest of the world which affect the assets & liabilities of a nation.
Components of Capital Account
1. Private transaction: Those transactions which affect the assets & liability by individuals, business an non-govt entities.
2. Official transactions: These includes transactions affecting assets & liabilities by govt & its agencies.
3. Direct Investment: It means purchasing an assets & at the same time acquiring control of it.
eg. Purchase of a house abroad.
4. Portfolio Investment: It is also acquisition of an assets but it does not give the purchasing full control of it.
eg. Purchase of shares in a foreign company
Causes of BOP1. Economic Factors:
1. Private transaction: Those transactions which affect the assets & liability by individuals, business an non-govt entities.
2. Official transactions: These includes transactions affecting assets & liabilities by govt & its agencies.
3. Direct Investment: It means purchasing an assets & at the same time acquiring control of it.
eg. Purchase of a house abroad.
4. Portfolio Investment: It is also acquisition of an assets but it does not give the purchasing full control of it.
eg. Purchase of shares in a foreign company
Causes of BOP1. Economic Factors:
- Large scale development expenditure.
- high domestic prices causes imports.
- Cyclical fluctuations like recessions or depression increases imports.
- Political instability and disturbances cause large capital outflow and less of inflows of foreign capital.
Difference between Balance Of Current Account of BOP And Balance Of Payments
Difference between Autonomous items of BOP And Accommodating items of BOP
Difference between Balance of Trade And Balance of Payments
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