Balance of Payment(BOP)

BALANCE OF PAYMENT

Waqas Ahmed 10070621-044Umar Jalil 10070621-053Ali Irfan Shah 10070621-031

10070621-044WAQAS AHMED

The balance of a payment is a systematic record of all its monetary transections with other countries of the world in a given period of time. i.e 1 year

when we say “a country’s balance of payments” we are referring to the transactions of its citizens and government.

Balance of Trade V/s Balance of Payment

The Balance of Payment takes into account all the transaction with the rest of the worlds

The Balance of Trade takes into account all the trade transaction with the rest of the worlds

BCA + BKA + BRA = 0whereBCA = balance on current accountBKA = balance on capital accountBRA = balance on the reserves account

Under a pure flexible exchange rate regime,

BCA + BKA = 0

TYPES OF BALANCE OF PAYMENT The Balance of Payments statement

comprises four major categories

Current Account Capital Account Reserve Accounts Errors & Omissions

Current Account Includes all imports and exports of

goods and services. Includes unilateral transfers of foreign

aid. If the debits exceed the credits, then a

country is running a trade deficit. If the credits exceed the debits, then a

country is running a trade surplus.

Capital Account on receipts side, short term and long-

term capital inflow receipts of foreign direct investment and foreign debts are posted

Same items are written in payment side while making payment.

10070621-053UMAR JALIL

Reserve Accounts It shows the foreign exchange position

of a country Official reserve account has the records

of foreign official holding and increase reserves of gold and foreign currencies

Errors & Omissions

The entries under this head relate mainly to leads and lags in reporting of transactions

It is of a balancing entry and is needed to offset the overstated or understated components.

IMPORTANCE OF BALANCE OF PAYMENT It helps 1) State of International economic

relationship of country 2) A guide to its

monetary.fiscal.exchange & other polices.

3) Inform govt about the international economic position of the country, to assist in reaching decissions on the monetary and fiscal polices

The balance of payments analysis shows:-

whether it is paying for its import

through exporting goods, drawing down its foreign assests or receiving donations

DISEQUILIBRIUM IN THE BALANCE OF PAYMENTS

Types of BOP Disequilibrium: There are three main types of BOP

Disequilibrium which are discussed below:    Cyclical Disequilibrium,    Secular Disequilibrium,    Structural Disequilibrium.

General Measures to Correct BOP DisequilibriumTo correct the different types of disequilibrium in BOP the following general measures are used:Exchange depreciation (price effect) or devaluation (by government)Deflate the currencyTariffsImport quotasExport duties

10070621-031ALI IRFAN SHAH

CAUSES OF DISEQUILIBRIUM IN THE BOP

Cyclical fluctuations Short fall in the exports Economic Development Rapid increase in population Structural Changes Natural Calamites International Capital Movements

MEASURES TO CORRECT ADVERSE BALANCE OF PAYMENT

EXPORT LED GROWTHa) Instead Of exporting Raw material

should export Finished Goodsb) Reduction in Export Dutiesc) Export Quality Products

MEASURES TO CORRECT ADVERSE BALANCE OF PAYMENT

• REDUCTION IN IMPORTS

a) Import of Only Essential Itemsb) Exchange Controlc) Substitutes for Imported Items

MEASURES TO CORRECT ADVERSE BALANCE OF PAYMENT

MISCELLANEOUS

a) Population Control

b) Decrease in Consumption

c) Control of Smuggling

THANKS