ppt on bop & bot
TRANSCRIPT
Balance Of Payment (BOP) & Balance of Trade (BOT)
Presented by Group 1
Aditya Kurundkar 061
Aishwarya Phalke 062
Pooja Ajitsaria 063
Akta Gangwal 064
Vinstin Alexander 065
Introduction
Balance of Payments (BOP) accounts are an
accounting record of all monetary transactions
between a country and the rest of the world. These
transactions include payments for the country's
exports and imports of goods & services, financial
capital, and financial transfers.
Introduction A country has to deal with other countries in respect of 3 items:- Visible items which include all types of physical
goods exported and imported. Invisible items which include all those services
whose export and import are not visible. e.g. transport services, medical services etc.
Capital transfers which are concerned with capital receipts and capital payment.
Features It is a systematic record of all economic transactions
between one country and the rest of the world. It includes all transactions, visible as well as
invisible. It relates to a period of time. Generally, it is an
annual statement. It adopts a double-entry book-keeping system. It has
two sides: credit side and debit side. Receipts are recorded on the credit side and payments on the debit side.
Components of BOP
The three major components of balance of payment are as follows:
1. Current Account2. Capital Account3. Balancing Item
Components of BOP
1. Current Account It refers to an account which records all the
transactions relating to export and import of goods and services and unilateral transfer
It contains the receipts and payments relating to all the transactions of visible items, invisible items and unilateral transfers
It shows the net income generated in the foreign sector
Components of BOP
Components of Current Account :
Export and Import of Goods (Merchandise
Transactions or Visible Trade)
Export and Import of Services (Invisible Trade)
Unilateral or Unrequited Transfers to and from
abroad (One sided Transactions)
Income receipts and payments to and from abroad
Components of BOP
2. Capital Account It records all those transactions, between the
residents of a country and the rest of the world, which cause a change in the assets or liabilities of the residents of the country or its government
It is related to claims and liabilities of financial nature
Capital Account is used to:
a. Finance deficit in current account; or
b. Absorb surplus of current account.
Components of BOP
Components of Capital Account:
Borrowings and landings to and from abroad
Investments to and from abroad
Change in Foreign Exchange Reserves
Components of BOP
3. Balancing Item It is simply an amount that accounts for any
statistical errors and assures that the current and capital accounts sum to zero
By the principles of double entry accounting, an entry in the current account gives rise to an entry in the capital account, and in aggregate the two accounts automatically balance
Components of BOP
It may be positive or negative
A balance isn't always reflected in reported
figures for the current and capital accounts, which
might, for example, report a surplus for both
accounts
Balance of Trade The difference between a country's imports and its
exports. Balance of trade is the largest component of a country's balance of payments
Debit items include imports, foreign aid, domestic spending abroad and domestic investments abroad
Credit items include exports, foreign spending in the domestic economy and foreign investments in the domestic economy
When exports are greater than imports than the BOT is favourable and if imports are greater than exports then it is unfavourable
BOP vs. BOT
BOP1. It is a broad term.2. It includes all transactions
related to visible, invisible and capital transfers.
3. It is always balances itself.
4. BOP = Current Account + Capital Account + or - Balancing item ( Errors and omissions)
BOT1. It is a narrow term.2. It includes only visible
items.3. It can be favourable or
unfavourable.4. BOT = Net Earning on
Export - Net payment for imports.
BOP vs. BOT
BOP5. Following are main factors which affect BOPa) Conditions of foreign lenders. b) Economic policy of Govt. c) all the factors of BOT
BOT5. Following are main factors which affect BOTa) cost of productionb) availability of raw materialsc) Exchange rated) Prices of goods manufactured at home
Limitation of Balance of Payments
1. Coverage of Transactions:
Government, Central banks
International Institutions
Illegal Transactions
2. Classifications of Items
3. Agreements and their Implementation
4. Valuation
Balance of Payments
Measures to correct disequilibrium
Measures to Correct Disequilibrium
Devaluation Increasing interest rates Export Promotion Reducing inflation Exchange control Make domestic companies competitive Take further loans from foreigners
Present Status A country, like India, which is on the path of
development generally, experiences a deficit balance of payments situation.
This is because such a country requires imported machines, technology and capital equipment's in order to successfully launch and carry out the programme of industrialization
The stress in India’s BoP, which was observed during 2011-12 as a fallout of the euro zone crisis and inelastic domestic demand for certain key imports
The rise in imports owed to India’s dependence on crude petroleum oil imports and elevated levels of gold imports.
Sr. No. Item 2009-10 2010-
2112011-12 2012-
132013-14
I Current Account
1.1 Exports 182.442 256.159 309.774 306.581
318.607
1.2 Imports 300.644 383.481 499.533 502.237
466.214
1.3 Trade Balance -118.202
-127.322
-189.759
-195.656
-147.609
1.4 Invisibles 80.022 79.269 111.604 107.493
115.212
Current A/C Bal
-38.18 -48.053
-78.155
-88.163
-32.397
II Capital Account
2.1 External Assistance
2.89 4.94 2.296 0.982 1.03
2.2 Ext. Borrowings 2.00 12.16 103.44 8.48 11.772.3 Short Term Debt 7.55 12.03 6.66 21.65 -5.042.4 Banking Capital 2.08 4.96 16.226 16.57 25.442.5 Foreign
Investment50.36 42.12 39.23 46.71 26.38
2.6 Other Flows -13.25 -12.48 -7.008 -5.105 -10.81Capital Account Bal
51.63 61.104 65.323 91.98 47.905
In Billion US $
Conclusion
To correct disequilibrium in the India’s Balance of Payment
India should become Export driven country from Import driven country
India should build foreign exchange reserves to safeguard unforeseen future.
Enhancement of capacity of Production
Flows of FDI’s to bring economic growth
Thank You !!!