Description
Describes what is balance of payments, what is trade account, what is invisible account, what is current account balance, what is capital account balance.
Balance of Payments
What is Balance of Payments
• Balance of payment (BoP) is the difference between receipts of residents of a country from foreigners and payments by residents to foreigners. A transaction which increases the supply of foreign exchange is recorded as a credit entry while any transaction that uses up foreign exchange is recorded as debit. BoP is a double book entry, that is every transaction is entered twice. Hence, overall balance of payment is always in balance. It is the different parts of BoP accounts which provide insights into the external balance of payments situation.
BoP at a Glance
India’s BoP - Summary
Balance of Payments
• Trade balance gives only a partial picture of a country’s international obligations. To have a complete enumeration of international transactions, it is necessary to add to the net trade balance all other payments and receipts - this is the balance of payments of a country in relation to the rest of the world
What is Trade Account?
• Trade account shows the balance from export and import of merchandise only. These include physical movement of goods like manufactured products, semi-finished goods, capital goods, raw materials etc
What is Invisible Account?
• Non-merchandize items are known as invisibles. There are broken down into three components
– Service – i) travel and tourism, b) transportation, c) financial and other services including insurance, d) Govt embassies and export/import of services like software – Investment income – receipt (credit) and payments (debit) of dividends, interests and profits arising out of Indian investments abroad and foreign investments in India – Transfer of payments – foreign aid, gifts, foreign workers payments
What is current account balance?
• Current account balance refers to balance in flows of goods (merchandize) and services and other current receipts and payments (investment income and transfer payments) between countries.
– There may be deficit/surplus in trade account or invisible account or deficit/surplus may be there in both the accounts
What is capital account balance?
• Under capital account, only export and import of capital and the difference between the two represents a country’s capital account balance. Capital import/export take place on account of
– Foreign investments (FDI – long term capital movements and FII – short term capital movements) – Loans (Government and private sector) – Banking capital (changes in foreign assets and liabilities of our banks including NRI investment) – Rupee debt service (obligation to repay foreign loan in rupees) – Other capital (delayed receipts on account of exports)
What are monetary movements?
• These movements keep a record of a country’s transactions with the IMF and forex reserves. Drawings from IMF are a credit item and repayments debit items. Drawing down of reserves, which is an inflow into the BoP from reserve account is a credit item. Like any other inflow, these reserves can be used to support a deficit elsewhere in the BoP. Similarly, additions to reserve account are an outflow from the BoP to the reserve account and are therefore a debit item.
Current Account
Trade Composition of BoP
Trade Composition of BoP
Services component of BoP
Services component of BoP
Capital Account of BoP
Capital Account - Debt Flows
Capital Account- Non Debt Flows
International Investment Position India
Understanding BoP
Item I II Trade Account Invisibles Account services investment income transfer payments CURRENT ACCOUNT CAPITAL ACCOUNT foreign investments loans banking capital rupee debt service other capital Errors and Omissions OVERALL BALANCE Monetary Movements IMF transactions increase in reserves 135222 Balance of Payments - XYZ Country Credit Debit Net 44894 59264 -14370 34786 24006 10780 18870 16397 2478 2705 7532 -4832 13211 77 13134 79680 55542 15981 22797 12772 3992 83270 45524 10119 18545 11961 617 4282 572 129366 5856 26 5830 -3590 10018 5862 4252 811 -617 -290 -572 5856 -5856 -26 -5830
III IV
V VI VII
doc_459343769.ppt
Describes what is balance of payments, what is trade account, what is invisible account, what is current account balance, what is capital account balance.
Balance of Payments
What is Balance of Payments
• Balance of payment (BoP) is the difference between receipts of residents of a country from foreigners and payments by residents to foreigners. A transaction which increases the supply of foreign exchange is recorded as a credit entry while any transaction that uses up foreign exchange is recorded as debit. BoP is a double book entry, that is every transaction is entered twice. Hence, overall balance of payment is always in balance. It is the different parts of BoP accounts which provide insights into the external balance of payments situation.
BoP at a Glance
India’s BoP - Summary
Balance of Payments
• Trade balance gives only a partial picture of a country’s international obligations. To have a complete enumeration of international transactions, it is necessary to add to the net trade balance all other payments and receipts - this is the balance of payments of a country in relation to the rest of the world
What is Trade Account?
• Trade account shows the balance from export and import of merchandise only. These include physical movement of goods like manufactured products, semi-finished goods, capital goods, raw materials etc
What is Invisible Account?
• Non-merchandize items are known as invisibles. There are broken down into three components
– Service – i) travel and tourism, b) transportation, c) financial and other services including insurance, d) Govt embassies and export/import of services like software – Investment income – receipt (credit) and payments (debit) of dividends, interests and profits arising out of Indian investments abroad and foreign investments in India – Transfer of payments – foreign aid, gifts, foreign workers payments
What is current account balance?
• Current account balance refers to balance in flows of goods (merchandize) and services and other current receipts and payments (investment income and transfer payments) between countries.
– There may be deficit/surplus in trade account or invisible account or deficit/surplus may be there in both the accounts
What is capital account balance?
• Under capital account, only export and import of capital and the difference between the two represents a country’s capital account balance. Capital import/export take place on account of
– Foreign investments (FDI – long term capital movements and FII – short term capital movements) – Loans (Government and private sector) – Banking capital (changes in foreign assets and liabilities of our banks including NRI investment) – Rupee debt service (obligation to repay foreign loan in rupees) – Other capital (delayed receipts on account of exports)
What are monetary movements?
• These movements keep a record of a country’s transactions with the IMF and forex reserves. Drawings from IMF are a credit item and repayments debit items. Drawing down of reserves, which is an inflow into the BoP from reserve account is a credit item. Like any other inflow, these reserves can be used to support a deficit elsewhere in the BoP. Similarly, additions to reserve account are an outflow from the BoP to the reserve account and are therefore a debit item.
Current Account
Trade Composition of BoP
Trade Composition of BoP
Services component of BoP
Services component of BoP
Capital Account of BoP
Capital Account - Debt Flows
Capital Account- Non Debt Flows
International Investment Position India
Understanding BoP
Item I II Trade Account Invisibles Account services investment income transfer payments CURRENT ACCOUNT CAPITAL ACCOUNT foreign investments loans banking capital rupee debt service other capital Errors and Omissions OVERALL BALANCE Monetary Movements IMF transactions increase in reserves 135222 Balance of Payments - XYZ Country Credit Debit Net 44894 59264 -14370 34786 24006 10780 18870 16397 2478 2705 7532 -4832 13211 77 13134 79680 55542 15981 22797 12772 3992 83270 45524 10119 18545 11961 617 4282 572 129366 5856 26 5830 -3590 10018 5862 4252 811 -617 -290 -572 5856 -5856 -26 -5830
III IV
V VI VII
doc_459343769.ppt