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IntroductIon:
 Every business/firm prepares its annual final accounts
and balance sheet of its transactions with the rest of
the society with a view to knowing its Profit or loss
and assets and liabilities.

 Lly, every nation carrying out economic transactions
with foreign countries Prepares its balance of
Payment accounts periodically with a view to taking
stock of its assets and liabilities & its receipts from
and payment obligations to the rest of the world.

defInItIon & Importance of Bop:
 A systematic record of all economic transactions
between the residents of a country and residents of
foreign countries during a certain period of time is
called balance of payment.
 The System of recording the economic transactions is
double entry bookkeeping system.
 Economic transactions include all such transactions that
involve the transfer of title or ownership.
 While some transactions involve physical transfer of
goods , services, assets and money along with the
transfer of title, some transactions do not.

uses of Bop:
 It Provides an extremely useful data for the
economic analysis of the country’s weakness
& strength as a Partner in international trade.
 BOP also reveals the changes in the
composition and magnitude of foreign trade.
 BOP also Provides indications of future
repercussions of countries Past trade
Performances.

Bop accounts:
 There are two broad categories of BOP
Transactions:
 Current transactions:

It Pertain to export & Import of
goods & services that change the current level
of consumption in the country or bring a
change in the current level of national(money)
income.

 Capital transaction:
are those transactions which
increase or decrease a country’s total stock of
capital , instead of affecting the current level
of consumption or national income.

 In accordance with the two kinds of
transactions, BOP accounting is divided
into two major accounts:
 Current A/c
 Capital A/c.

current account:
 Current account can be further grouped
as:
1) Visible items(export & Import of goods)
2) Invisible items(all other items in the
current account payment & receipt for the
services such as banking , insurance and
shipping etc.)

 But , sometimes another category called
“unrequired Transfer ” is created to give a
separate treatment to the items like gifts ,
donations, military aid , technical
assistance etc.

capItal account:
 Broad categories of capital account items
are
a) Short-term capital movement
b) Long-term capital movement
c) Changes in the exchange reserves

short-term capItal movement

I.Purchase of Short-term securities such as
treasury bills, commercial bill &acceptance
bill
II.Speculative purchase of foreign currency
III.Cash balances held by foreigners for
reason as fear of war, political instability &
so on

long-term capItal movements

I. Direct investments in shares bonds and
in real estate and physical asset such as
plant, building, equipment & so forth in
which investors hold a controling power
II. Portfolio investment in stocks & bonds
such as government securities, securities
of firms not entitling the holder with
controlling power

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Balance of payments

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