Balance of Payment (BOP) - Concept & definition ↓
Most of exports in addition to imports involve finance i.e. receipts in addition to payments inwards money. An trouble concern human relationship of all receipts in addition to payments is termed every bit Balance of Payments (BOP).
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According to Kindle berger, "The residue of payments of a province is a systematic tape of all economical transactions betwixt the residents of the reporting province in addition to residents of unusual countries during a given yeriod of time".
The residue of payment tape is maintained inwards a criterion double-entry book-keeping method. International transactions move inwards in to the tape every bit credit or debit. The payments received from unusual countries move inwards every bit credit in addition to payments made to other countries every bit debit.
Balance of Payment is a tape pertaining to a catamenia of time; unremarkably it is all annual statement. All the transactions entering the residue of payments tin last grouped nether 3 wide accounts; (1) Current Account, (2) Capital Account, in addition to (3) Official International Reserve Account. However, it tin last vertically divided into many categories every bit per the requirement.
Structure of Balance of Payment (BOP) ↓
1. Trade Account Balance
It is the divergence betwixt exports in addition to imports of goods, unremarkably referred every bit visible or tangible items. Till of late goods dominated international trade. Trade trouble concern human relationship residue tells every bit whether a province enjoys a surplus or deficit on that account. An industrial province amongst its industrial products comprising consumer in addition to majuscule goods ever had an advantageous position. Developing countries amongst its export of primary goods had virtually of the fourth dimension suffered from a deficit inwards their residue of payments. Most of the OPEC countries are inwards improve set on merchandise trouble concern human relationship balance.
The Balance of Trade is every bit good referred every bit the 'Balance of Visible Trade' or 'Balance of Merchandise Trade'.
2. Current Account Balance
It is divergence betwixt the receipts in addition to payments on trouble concern human relationship of electrical flow trouble concern human relationship which includes merchandise balance. The electrical flow trouble concern human relationship includes export of services, interests, profits, dividends in addition to unilateral receipts from abroad, in addition to the import of services, interests, profits, dividends in addition to unilateral Payments to abroad. There tin last either surplus or deficit inwards electrical flow account. The deficit volition direct hold house when the debits are to a greater extent than than credits or when payments are to a greater extent than than receipts in addition to the electrical flow trouble concern human relationship surplus volition direct hold house when the credits are to a greater extent than than debits.
3. Capital Account Balance
It is divergence betwixt the receipts in addition to payments on trouble concern human relationship of majuscule account. The majuscule trouble concern human relationship involves inflows in addition to outflows relating to investments, brusk tern borrowings/lending, in addition to medium term to long term borrowing/lending. There tin last surplus or deficit inwards majuscule account. The surplus volition direct hold house when the credits are to a greater extent than than debits in addition to the deficit volition direct hold house when the debits are to a greater extent than than credits.
4. Foreign Exchange Reserves
Foreign telephone commutation reserves (Check item No.9 inwards higher upwards figure) shows the reserves which are held inwards the shape of unusual currencies unremarkably inwards difficult currencies similar dollar, pound etc., golden in addition to Special Drawing Rights (SDRs). Foreign telephone commutation reserves are analogous to an individual's belongings of cash. They increment when the private has a surplus inwards his transactions in addition to decrease when he has a deficit. When a province enjoys a cyberspace surplus both inwards electrical flow trouble concern human relationship & majuscule account, it increases unusual telephone commutation reserves. Whenever electrical flow trouble concern human relationship deficit exceeds the inflow inwards majuscule account, unusual telephone commutation from the reserve accounts is used to encounter the deficit If a country's unusual telephone commutation reserves rise, that transaction is shown every bit minus inwards that country's residue of payments accounts because coin is been transferred to the unusual telephone commutation reserves.
Foreign telephone commutation reserves (forex) are used to encounter the deficit inwards the residue of payments. The entry is inwards the receipt side every bit nosotros have the forex for the detail twelvemonth past times reducing the residue from the reserves. When surplus is transferred to the unusual telephone commutation reserve, it is shown every bit minus inwards that detail year's residue of payment account. The minus sign (-) indicates an increment inwards forex in addition to addition sign (+) shows the borrowing of unusual telephone commutation from the forex trouble concern human relationship to encounter the deficit.
5. Errors in addition to Omission
The errors may last due to statistical discrepancies & omission may last due to sure enough transactions may non last recorded. For eg: Influenza A virus subtype H5N1 remittance past times an Indian working abroad to Republic of Republic of India may non however recorded, or a payment of dividend abroad past times an MNC operating inwards Republic of Republic of India may non however recorded some on. The errors in addition to omissions amount equals to the amount necessary to residue both the sides.
