XII Banking - Question 29 - Balance of Payment

Q.29. Write a detailed note on Balance of Payments.




BALANCE OF PAYMENTS
Each nation periodically publishes a set of statistics that summarize for a given period all economic transactions between its residents and the outside world. This statistical statement is referred to as balance of payments. The accounts show how a nation has financed its internation activities during the reporting period. They also show that what changes have taken place in the nations financial claims and obligations with the rest of the world.


STANDARD PRESENTATION

The IMF has significantly worked with success to standardize the system and the form of presentation.


B.O.P – DOUBLE ENTRY ACCOUNT

The B.O.P used double entry accounting. Transactions are recorded as credits of the yield receipts from or claims against foreign owners. Credits are received for example by exports of merchandise, sale of securities overseas and rendering services to foreigners. Similarly, debits are recorded of transactions cause payments to foreigners e.g. importing goods, tourist expenses abroad, purchase of foreign bonds.


B.O.P – CURRENT ACCOUNT

The Current Account uncludes merchandise trade in good and International Services are termed as Invisible trade. There are four basic service components. Tourism, Investment, Private Sector, Services such as royalties, rent, consulting and engineering fees etc and Government services such as diplomatic and buildings and membership fees in international organizations.


B.O.P – CAPITAL ACCOUNT

The capital account has a long term and a short term sector. The long term amount shows the inflow and outflow of capital commitments which have a maturity longer than a year. Short term capital movement frequently have a maturity date from 30-90 days. Long term capital items generally include loans to and from other governments, financial support for development. Projects abroad and export financing. Short term capital include paying for international services, selling accounts etc.