What is the “balance of payments”?
The balance of payments of a country is an accounting of the international transactions that take place between its residents and the residents of other countries.
It shows the “big picture” of a country’s economic situation, by reporting the flow of transactions during a specific period of time. The balance of payments is widely used in evaluating a country’s economic programs and its relative strengths in global markets. It is analyzed for the value of various components, their rates of growth and the inter-relationships that exist between them.
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The balance of payments consists of three principal accounts:
The trade balance (imports and exports of merchandise)
The current account (goods + services + rents + unilateral transfers)
The basic balance (current account + long-term capital)
The balance of payments also consists of:
The capital account (Foreign direct investment + portfolio investments +other short-term investments)
Net errors and omissions
Official reserves (gold, foreign exchange, central bank obligations)
The Components Of Balance Of Payments
A: CURRENT ACCOUNT
Balance of trade, balance of services and balance of transfers together constitute the’ balance of current account’, because all these forms of transactions or transfers take place during a reference period of say, one year, which is considered the current period. The current account records the transactions in merchandise and invisibles with the rest of the world where Merchandise covers exports and imports of all movable goods.
B CAPITAL ACCOUNT:
The capital Account shows capital transactions or movements either in the short-term or in the long-term. Capital movement includes borrowing or lending, repayment of loan. Etc.
1: Foreign Investment:
Any investment made by foreign residents in the acquisition of physical assets in India is a Foreign Direct Investment.
: Rupee Debt Service:
The item ‘Rupee Debt Service’ is defined as the cost of meeting interest payments and regular contractual repayments of principal of a loan along with any administration charges in rupees by India.
2: Loans:
Loans include confessional loans received by the government or public sector bodies, long-term and medium-term borrowings from the commercial capital market in the form of loans, bond issues, etc and short-term credits.
C: ERRORS AND OMMISIONS:
Certain discrepancies in estimation and timing may result in a situation where debits are not exactly equal to the credits. The item ‘Errors and Omissions’ indicates the value of such discrepancies. A negative value indicates that receipts are oversta
D: MONETARY MOVEMENTS
The monetary movements keep record of
a)*India’s transactions with the International Monetary Fund (IMF) and,
b)*India’s foreign exchange reserves which basically consist of RBI holdings of gold and foreign currency assets.
debt or payments are understated, or both and vice versa.
The change in Monetary Movements account reflects the overall BoP position. That is, an increase in Foreign Exchange Reserves or net repurchase from IMF indicates the position of BoP surplus and a decrease in the Foreign exchange
The balance of payments of a country is an accounting of the international transactions that take place between its residents and the residents of other countries.
It shows the “big picture” of a country’s economic situation, by reporting the flow of transactions during a specific period of time. The balance of payments is widely used in evaluating a country’s economic programs and its relative strengths in global markets. It is analyzed for the value of various components, their rates of growth and the inter-relationships that exist between them.
*
*
The balance of payments consists of three principal accounts:
The trade balance (imports and exports of merchandise)
The current account (goods + services + rents + unilateral transfers)
The basic balance (current account + long-term capital)
The balance of payments also consists of:
The capital account (Foreign direct investment + portfolio investments +other short-term investments)
Net errors and omissions
Official reserves (gold, foreign exchange, central bank obligations)
The Components Of Balance Of Payments
A: CURRENT ACCOUNT
Balance of trade, balance of services and balance of transfers together constitute the’ balance of current account’, because all these forms of transactions or transfers take place during a reference period of say, one year, which is considered the current period. The current account records the transactions in merchandise and invisibles with the rest of the world where Merchandise covers exports and imports of all movable goods.
B CAPITAL ACCOUNT:
The capital Account shows capital transactions or movements either in the short-term or in the long-term. Capital movement includes borrowing or lending, repayment of loan. Etc.
1: Foreign Investment:
Any investment made by foreign residents in the acquisition of physical assets in India is a Foreign Direct Investment.
: Rupee Debt Service:
The item ‘Rupee Debt Service’ is defined as the cost of meeting interest payments and regular contractual repayments of principal of a loan along with any administration charges in rupees by India.
2: Loans:
Loans include confessional loans received by the government or public sector bodies, long-term and medium-term borrowings from the commercial capital market in the form of loans, bond issues, etc and short-term credits.
C: ERRORS AND OMMISIONS:
Certain discrepancies in estimation and timing may result in a situation where debits are not exactly equal to the credits. The item ‘Errors and Omissions’ indicates the value of such discrepancies. A negative value indicates that receipts are oversta
D: MONETARY MOVEMENTS
The monetary movements keep record of
a)*India’s transactions with the International Monetary Fund (IMF) and,
b)*India’s foreign exchange reserves which basically consist of RBI holdings of gold and foreign currency assets.
debt or payments are understated, or both and vice versa.
The change in Monetary Movements account reflects the overall BoP position. That is, an increase in Foreign Exchange Reserves or net repurchase from IMF indicates the position of BoP surplus and a decrease in the Foreign exchange