Ppt of bop

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BALANCE OF PAYAMENT

TOPIC

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DEFINATION OF BOP

• “A systematic record of all economic transaction between the residents of a country and residents of foreign countries during acertain period of time ”

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Current Account

Capital Account

Structural Example

CATEGORIES & STRUCTURE

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CURRENT ACCOUNT

WHAT IS CURRENT ACCOUNT? The current account contains entries related to exports and imports of

merchandise and services that changes the current level of consumption or national income of the country.

• Goods Exported and Imported :- Goods are exported to foreign countries and Goods are Imported from foreign countries.

• Services Exported or Imported :- Income earned through the export of services is insurance, banking, interest on loans, tourist expenditures, transport charges.

• Income from investment in the foreign countries :- the invisible account is income from investment in the foreign countries through interest/dividend.

• Unilateral receipts/payments :- the invisible account shows unilateral receipts on the credit side and unilateral payment on the debit side. these payments and receipts consists of gifts and charities which are given and received freely without the obligation to repay.

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CAPITAL ACCOUNT

WHAT IS CAPITAL ACCOUNT? The capital account contains entries relating to movement of short term and long

term capital both in and out of the country along with gold and foreign exchange reserves leading to increase or decrease of a country’s total stock of capital.

• Short term capital include purchase of short term securities such as treasury bills, commercial bills, acceptance bills, purchase of foreign currency and cash balance held by foreigners.

• Long term capital includes direct investments in shares or bonds or real estate or physical asset such as plant, building, equipments etc, portfolio investment in government securities and securities of a firms etc.

• Export of capital is a debit item whereas export of merchandise is a credit item because of export of merchandise leads in inflow of foreign exchange which adds to the national income of the reporting country and export of capital leads to outflow of foreign exchange which leads to withdraw from the foreign exchange resources of the reporting country.

• Purchase/Sale of gold/assets :- gold sale to foreign countries or purchase from foreign countries

• Errors and omissions :- the item error and omission indicate the value of certain discrepancies (difference) in estimation resulting in situation where debits are not exactly equal to the credit.

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WHY BOP ALWAYS BALANCE

• Double entry book system

• Errors and Omissions

• Any negative balance in current A/c is made corrected by a surplus balance on the capital A/c & vice versa

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Thank You