BALANCE OF PAYMENT:

The balance of payments of a country is a systematic

record of all economic transactions between the

residents of a country and the 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 theme on account of

goods imported and services received from the capital

transferred to non-residents or foreigners.

- Reserve Bank of India

Importance of BoP • The BoP is an important indicator of pressure on a country’s

foreign exchange rate .

• The BOP helps to forecast a country’s market potential, especially in the short run.

• Changes in a country’s BOP may signal the imposition or removal of controls over payment of dividends and interest, license fees, royalty fees, or other cash disbursements to foreign firms or investors.

• A current account deficit is when a country's government, businesses and individuals import more goods, services and capital than they export. That's because the current account measures trade, as well as international income, direct transfers of capital, and investment income made on assets, according to the Bureau of Economic Analysis.

BALANCE OF

PAYMENTS

Current

Account

Capital

Account

Official Reserve

Account

Foreign

Direct

Investment (FDI)

Unilateral transfers: Gifts, donations & subsidies

Portfolio Investment

Goods account: Exports & Imports

Services account: Travel, transportation, Insurance etc.

Private

Short-term

Capital Flows

Decrease or increase in foreign exchange reserves

Investment Income : Interest, Dividends etc.