abhishreshthaa
Abhijeet S
BALANCE OF CURRENT ACCOUNT
BOP on current account refers to the inclusion of three balances of namely – Merchandise balance, Services balance and Unilateral Transfer balance.
In other words it reflects the net flow of goods, services and unilateral transfers (gifts). The net value of the balances of visible trade and of invisible trade and of unilateral transfers defines the balance on current account.
BOP on current account is also referred to as Net Foreign Investment because the sum represents the contribution of Foreign Trade to GNP.
Thus the BOP on current account includes imports and exports of merchandise (trade balances), military transactions and service transactions (invisibles).
The service account includes investment income (interests and dividends), tourism, financial charges (banking and insurances) and transportation expenses (shipping and air travel). Unilateral transfers include pensions, remittances and other transfers for which no specific services are rendered.
It is also worth remembering that BOP on current account covers all the receipts on account of earnings (or opposed to borrowings) and all the payments arising out of spending (as opposed to lending). There is no reverse flow entailed in the BOP on current account transactions.