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Balance of Payments

Posted: Monday, 18 August, 2014. | By: Equipoise Bot

Balance of payments accounts are an accounting record of all monetary transactions between a country and the rest of the world. These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers. Sources of funds for a nation, such as exports or the receipts of loans and investments, are recorded as positive or surplus items. Uses of funds, such as for imports or to invest in foreign countries, are recorded as negative or deficit items.

When all components of the BOP accounts are included they must sum to zero with no overall surplus or deficit. For example, if a country is importing more than it exports, its trade balance will be in deficit, but the shortfall will have to be counter-balanced in other ways – such as by funds earned from its foreign investments, by running down central bank reserves or by receiving loans from other countries.

BOP1

Deficit/Surplus of the current account + Deficit/Surplus of the capital account = Net change in foreign exchange reserves


Example: US Balance of Payments data (2000)

BOP2

Balance on Current account + Balance on Capital Account = - Balance of Reserve Account

($444.69) + $444.26 + $0.73 =$0.30= -($0.30)

 

To gain more understanding one can also visit the RBI website to extract historical details about Balance of Payments of India.The link for the same is mentioned below:

http://www.rbi.org.in/scripts/sdds_viewdetails.aspx?id=5

 

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