1.ECONOMICS FOR MANAGERSBALANCE OF PAYMENTS 1ST.ALOYSIUS INSTITUTE OF MANAGEMENT & TECHNOLOGY (AIMIT)

2. DEFINITION THE BALANCE OF PAYMENTS OF A COUNTRY IS A SYSTEMATIC RECORD OF ALL ECONOMIC TRANSACTIONS BETWEEN RESIDENTS OF A COUNTRY AND REST OF THE WORLD. IT PRESENTS A CLASSIFIED RECORD OF ALL RECEIPTS ON ACCOUNT OF GOODS EXPORTED, SERVICES RENDERED AND CAPITAL RECEIVED BY RESIDENTS AND PAYMENTS MADE BY THEM ON ACCOUNT OF GOODS IMPORTED AND SERVICES RECEIVED FROM THE CAPITAL TRANSFERRED TO NONRBIST.ALOYSIUS FOREIGNERS & RESIDENTS OR INSTITUTE OF MANAGEMENT.TECHNOLOGY (AIMIT)2 3. MEANING (IN SIMPLE)3IN A NUTSHELL THE BOP OF ANY COUNTRY IS A SYSTEMATIC RECORD OF ALL ECONOMIC TRANSACTIONS BETWEEN THE RESIDENTS OF A GIVEN COUNTRY (SAY INDIA) AND OF THE RESIDENTS OF REST OF THE WORLD IN AN ACCOUNTING PERIOD ST.ALOYSIUS INSTITUTE OF MANAGEMENT & TECHNOLOGY (AIMIT) 4. MEANING (IN SIMPLE) THE BOP STATEMENTS RECORDS BOTH PAYMENTS AND RECEIPTS BY A COUNTRY. IT IS ALSO A BALANCE SHEET OF RECEIPTS & PAYMENTS OF A COUNTRY DURING AN ACCOUNTING YEAR. 4ST.ALOYSIUS INSTITUTE OF MANAGEMENT & TECHNOLOGY (AIMIT) 5. COMPONENTS OF BALANCE OF PAYMENTS UNILATERAL TRANSFERS A/CLONG TERM CAPITAL A/C SHORT TERM CAPITAL A/CSERVICE S A/CGOODS A/C5BALANCE OF PAYMENTSINTERNATIONA L LIQUIDITY A/CST.ALOYSIUS INSTITUTE OF MANAGEMENT & TECHNOLOGY (AIMIT) 6. GOODS ACCOUNT ITEMS OF FOREIGN EXCHANGEEARNINGS SPENDINGS/PAYMENTSAND INCLUDESVALUE OF MERCHANDISE EXPORTS AND THE VALUE OF MERCHANDISE IMPORTSST.ALOYSIUS INSTITUTE OF MANAGEMENT THESE ARE VISIBLE & TECHNOLOGY (AIMIT) ITEMS6 7. GOODS ACCOUNTIF 7RECEIPTS OF EXPORTS > PAYMENTS FOR IMPORTS => POSITIVE RECEIPTS OF EXPORTS NEGATIVEST.ALOYSIUS INSTITUTE OF MANAGEMENT & TECHNOLOGY (AIMIT) 8. SERVICES ACCOUNT RECORDSALL THE SERVICES EXPORTED & IMPORTED BY COUNTRY IN A YEAR SERVICESARE INTANGIBLE (INVISIBLE) ITEMS IN BOP WHY INVISIBLE-??? BECAUSE UNLIKE 8GOODS, THEY ARE NOT RECORDED IN THE PORT OF ENTRY & TECHNOLOGY (AIMIT) ST.ALOYSIUS INSTITUTE OF MANAGEMENT 9. SERVICES ACCOUNT SERVICE TRANSACTIONS INCLUDE (a)TRANSPORTATION, BANKING, INSURANCE RECEIPTS & PAYMENTS FROM & TO FOREIGN COUNTRIES(b) TOURISM, TRAVEL SERVICES & TOURIST PURCHASES OF GOODS & SERVICES RECEIVED FROM FOREIGN TOURISTS TO INDIA AND INDIAN TOURISTS GONE ABROAD 9ST.ALOYSIUS INSTITUTE OF MANAGEMENT & TECHNOLOGY (AIMIT) 10. SERVICES ACCOUNT SERVICE TRANSACTIONS INCLUDE (c) EXPENSES OF STUDENTS STUDYING ABROAD AND RECEIPTS FROM FOREIGN STUDENTS STUDYING IN HOME COUNTRY (d) EXPENSES OF DIPLOMATIC & MILITARY PERSONNEL STATIONED ABROAD AND FROM SIMILAR PERSONNEL FROM OVERSEAS WHO 10 ARE ST.ALOYSIUS INSTITUTE OF MANAGEMENT & TECHNOLOGY (AIMIT) STATIONED IN THE HOME 11. SERVICES ACCOUNT SERVICE TRANSACTIONS INCLUDE (e) INTERESTS, PROFITS, DIVIDENS AND ROYALITIES RECEIVED FROM FOREIGN COUNTRIES PAID OUT TO FOREIGN COUNTRIES11ST.ALOYSIUS INSTITUTE OF MANAGEMENT & TECHNOLOGY (AIMIT) 12. UNILATERAL TRANSFER ACCOUNT THIS ACCOUNT INCLUDES ALL GIFTS, GRANTS AND REPARATION RECEIPTS AND PAYMENTS TO FOREIGN COUNTRIES UNILATERAL TRANSFER CONSIST OF 2 TYPES OF TRANSFERS(a) Government Transfers, (b) Private Transfers 12ST.ALOYSIUS INSTITUTE OF MANAGEMENT & TECHNOLOGY (AIMIT) 13. UNILATERAL TRANSFER ACCOUNT (a)Government Transfers Foreign aids receipts Eg:- US FOREIGN AID to INDIA(b) Private Transfers Funds received from or remitted to foreign countries on person-to-person basis Eg:- A Indian settled in Australia remitting $100 a month to his aged parents in IndiaST.ALOYSIUS unilateral (pvt)TECHNOLOGY (AIMIT)inflow is a INSTITUTE OF MANAGEMENT & transfer 13 item in the Indian BOP 14. LONG TERM CAPITAL ACCOUNT INCLUDES THE AMOUNT OF CAPITAL THAT HAS MOVED INTO OR OUT OF THE COUNTRY IN A YEAR. LONG-TERM CAPITAL ACCOUNT INCLUDES THE FOLLOWING CATEGORIES:(a) Private Direct Investment (b) Private Portfolio Investment (C)Government OF Loans & TECHNOLOGY (AIMIT) to foreign ST.ALOYSIUS INSTITUTE MANAGEMENT 14 governments 15. LONG TERM CAPITAL ACCOUNT (a)Private Direct Investment Investments done by Indian (persons & firms) in foreign countries and vise versa b) Private Portfolio Investment Investments done by Indian citizens and firms in foreign securities or stocks or bonds or shares and vise versa c) Govt Loans to foreign investments 15ST.ALOYSIUS INSTITUTE OF MANAGEMENT & TECHNOLOGY (AIMIT) 16. SHORT TERM CAPITAL ACCOUNT 16BANK DEPOSITS & OTHER SHORT TERM PAYMENTS AND CREDIT ARRANGMENTS FALL INTO THIS CATEGORY. ITEMS WHICH FALL DUE ON DEMAND OR IN LESS THAN 1 YEAR ERRORS & OMMISSIONS INCLUDED IN SHORT TERM CAPITAL A/C OR UNRECORDED TRANSACTIONS AS A SEPARATE BOP A/C. THESE ERRORS INCLUDE (a) Statistical & recording errors (b) Smuggling (C) Illegal & secret capital movements (d) Imperfect ST.ALOYSIUS INSTITUTE OF MANAGEMENT & TECHNOLOGY (AIMIT) estimation procedures 17. INTERNATIONAL LIQUIDITY ACCOUNTRECORDS NET RESERVES.LISTS INTERNATIONAL ACCEPTABLE MEANS OF SETTLING INTERNATIONAL OBLIGATIONS.17CHANGESINFOREIGNST.ALOYSIUS INSTITUTE OF MANAGEMENT & TECHNOLOGY (AIMIT) 18. UNDERSTANDING INTERNATIONAL LIQUIDITY ACCOUNT SURPLUS CASE:- ($ MILLION) CREDITDEBIT(RECEIPTS)(PAYMENTS)115008002SERVICES ACCOUNT50014003UNILATERAL TRANSFERS ACCOUNTS1001204LONG TERM CAPITAL ACCOUNT9004005SHORT TERM CAPITAL ACCOUNT5006306INTERNATIONAL LIQUIDITY ACCOUNT7 18GOODS ACCOUNTBALANCE OF PAYMENTS150 3500ST.ALOYSIUS INSTITUTE OF MANAGEMENT & TECHNOLOGY (AIMIT)3500 19. UNDERSTANDING INTERNATIONAL LIQUIDITY ACCOUNT SURPLUS CASE:- ($ MILLION)THE LOGIC OF $150 MILLION AS DEBIT/PAYMENT IS A) PURCHASE OF IMPORT OF GOLD WORTH $150 MILLION; OR B) NET ADDITION TO ACCUMULATION OF FOREIGN RESERVES OF $150 MILLION; OR C) CAPITAL LENDING IN THE SUM OF $150 MILLION TO OTHER COUNTRIES ON SHORT TERM OR LONG TERM BASIS 19DEBIT ENTRY = SURPLUS ST.ALOYSIUS INSTITUTE OF MANAGEMENT & TECHNOLOGY (AIMIT) 20. UNDERSTANDING INTERNATIONAL LIQUIDITY ACCOUNT DEFICIT CASE:- ($ MILLION) CREDITDEBIT(RECEIPTS)(PAYMENTS)180015002SERVICES ACCOUNT14005003UNILATERAL TRANSFERS ACCOUNTS1201004LONG TERM CAPITAL ACCOUNT4009005SHORT TERM CAPITAL ACCOUNT6305006INTERNATIONAL LIQUIDITY ACCOUNT150720GOODS ACCOUNTBALANCE OF PAYMENTS35003500ST.ALOYSIUS INSTITUTE OF MANAGEMENT & TECHNOLOGY (AIMIT) 21. UNDERSTANDING INTERNATIONAL LIQUIDITY ACCOUNT DEFICIT CASE:- ($ MILLION) DEFICIT IS FINANCED BY A) SELLING OR EXPORTING GOLD WORTH $150 MILLION; OR B) DRAWING DOWN UPON THE PAST ACCUMULATED FOREIGN RESERVES = $150 MILLION; OR C) BORROWING CAPITAL IN THE SUM OF $150 MILLION ON SHORT TERM OR LONG TERM BASIS FROM FRIENDLY COUNTRIES OR INTERNATIONAL INSTITUTIONS LIKE IMF ETC 21ST.ALOYSIUS INSTITUTE OF MANAGEMENT & TECHNOLOGY (AIMIT)CREDIT ENTRY = DEFICIT 22. BOP SCHEDULE - SAMPLE MAJOR ACCOUNTSCREDITSDEBITSNet Surplus (+)(Receipts)(Payments)or Deficit (-)GOODS A/C20018020SERVICES A/C100250-150300430-130UNILATERAL TRANSFERS ACCOUNT300120180BALANCE OF PAYMENTS ON CURRENT A/C (I+II+III)60055050LONG TERM CAPITAL ACCOUNT15012030BASIC BALANCE (I + II + III + IV)75067080504010BALANCE OF PAYMENTS ON CAPITAL ACCOUNT (IV + V)20016040OVERALL BALANCE OF PAYMENTS (B+D)80071090BALANCE OF TRADE (I + II)SHORT TERM CAPITAL ACCOUNT90INTERNATIONAL LIQUIDITY ACCOUNT BALANCE OF PAYMENTS ACCOUNTING BALANCE22800800ST.ALOYSIUS INSTITUTE OF MANAGEMENT & TECHNOLOGY (AIMIT)0 23. THANK YOU23ST.ALOYSIUS INSTITUTE OF MANAGEMENT & TECHNOLOGY (AIMIT)