Balance of payments

It records commercial, fin, and economic flows between the residents of a given country and those of the rest of the world during a given period of time. It is a summary of the flow of economic transactions. It is for a country what a statement of sources(credits)and uses(debits) of funds is for a co.

BOP

It measures the flow of interest payments and receipts. It enables to know whether the country has s net surplus/deficit during a referred period of time. If the funds are more from abroad than it spends it has a surplus of bop.and if expenditure abroad by residents exceeds what the residents earn or receive from abroad the country has a deficit of bop.

Definition of BOP by IMF

As per IMF in its BOP manual as a statistical statement for a given period shows, Transactions in goods/services & income between an economy and the rest of the world. Changes of ownership and other changes in the eco. Monetary, gold, SDR & claims & liabilities to the rest of the world.

Definition of BOP by IMF

Unrequited transfers and counterpart entries that are needed to balabce in accounting sense. The BOP manual prescribes certain principles and concepts to be followed by the countries while compiling their BOP data to ensure that recording of transactions is systematic and consistent.(DEBKS)

Sources of funds for a country accrue from Exports of goods/services Sale of existing foreign financial assests Foreign loans/borrowings etc. uses of funds for a country accrue from Imports of goods/services Purchase of foreign fin.assets Foreign lending

Sources/uses of funds

Presentation of BOP
A BOP statement is divided into immediate accounts called as Current account Capital account Official reserves account

Current account

Records the trends of g/s among countries basically, imports/exports. Records all income related flows. Exports are the source of reserves/inflows. Imports are the use of reserves/outflows. These are entered on the credit and debit side of the BOP account. An inflow in this account is recorded as credit entry and outflow as a debit entry being the difference denoting surplus/deficit in net flows.

Capital account

Records the movement on account of international purchase/sale. Is divided into foreign direct investment, portfolio investment, and private short term capital flows. Any purchase of foreign asset by a resident is entered as a debit item in that countrys BOP account.

Any purchase by a foreign resident of a domestic asset is recorded as credit item. The exces of credits over debits in this account over a particular period is referred to as capital account surplus and vis a versa deficit.

Official reserves account

Includes gold, reserves of convertibles foreign currencies, SDR & balance with IMF which are the means of international payments. It reflects the amount of these items of international payment acquired or lost during the period of BOP account constructed.