Lloyds Bank

In: Business and Management

Submitted By abhi1997
Words 437
Pages 2
Introduction
Components of BOP
Disequilibrium in BOP
Causes of Disequilibrium
Methods to Correct disequilibrium

BOP Account
Approaches to the Problem of Balance of Payments

Definition
The Balance of payments is a statistical statement that systematically summarises, for a specific time period, the economic transactions of an economy with the rest of the world – BPM5 of IMF(RBI)

These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers. Sources of funds for a nation, such as exports or the receipts of loans and investments, are recorded as positive or surplus items. Uses of funds, such as for imports or to invest in foreign countries, are recorded as negative or deficit items.
When all components of the BOP accounts are included they must sum to zero with no overall surplus or deficit.
For example, if a country is importing more than it exports, its trade balance will be in deficit, but the shortfall will have to be counter-balanced in other ways – such as by funds earned from its foreign investments, by running down central bank reserves or by receiving loans from other countries.

Components:

All the transactions entering the balance of payments can be grouped under three broad accounts;

(1) Current Account,
(2) Capital Account, and
(3) Official International Reserve Account.
However, it can be vertically divided into many categories as per the requirement.

Double entry Book Keeping System

Trade Account Balance
Invisible Account Balance
Current Account Balance
Capital Account Balance (Autonomous & Accommodating)
Errors and Omission -The errors may be due to statistical discrepancies & omission may be due to certain transactions may not be recorded. For eg: A remittance by an Indian working abroad to India may not yet…...

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