Balance of Payment

12MBAFM426/BI436

BOP Statement
A.

Current Account
Merchandise Account
Exports
Imports
Balance
Service Account
Receipts (interest, dividends, tourist receipts
Financial charges)
Payments (interest, dividends, tourist payments,
Financial charges)
Balance
Balance on goods and services
Unilateral Transfers
Gifts, donations, subsidies received
Gifts, donations, subsidies given
Balance
Current account balance

xxx
(xxx)
xxx

xxx
(xxx)
xxx
xxx
xxx
(xxx)
xxx
xxx

Continued.
B. Capital Account
Foreign Direct Investment
Inflow (Direct Investment by foreigners)
Outflow (Direct Investment abroad)
Balance
Portfolio Investment (Long Term)
Inflow(foreigners investments in the securities
of the country )
Outflow(Investment in securities abroad)
Balance
Balance on Long term Capital Account
Portfolio Investment (Short Term)
Foreigners claim on the country
Short term claim on foreigners
Balance on Short term Capital Account
Overall Balance
C. Official Reserves Account
Decrease or Increase in foreign exchange reserves

xxx
(xxx)
xxx

xxx
(xxx)
xxx
xxx
xxx
(xxx)
xxx
xxx
xxx

Problems

An Indian firm exports goods worth INR 50Mln to a firm in the US. The US firm pays from
its bank account kept with the SBI Mumbai.

A firm in India imports equipment from a firm in the US by paying INR 60Mln. The US firm
deposits that amount in the Mumbai branch of American express bank.

A bank in India subscribes to bonds by a British Company in London for GBP 5Mln by
drawing on an account it has with branch in London.

An Indian resident avails himself of medical treatment in the US and pays UDS 2000 for it.

An Indian resident purchases INR 1Mln worth of shares of a US Co by borrowing the

equivalent USD amount from a US resident.

The double-entry accounting system

The basic convention applied in constructing the balance of payments is the double-entry
accounting system. Every transaction is represented by two entries with equal values but
opposite signs, a debit () and a credit (+). By convention, certain items are recorded as debits
and others as credits, as follows:
Exports of goods and services Credit (+)
Imports of goods and services Debit ()
Increase in financial liabilities Credit (+)
Increase in financial assets Debit ()
Decrease in liabilities Debit ()
Decrease in assets Credit (+)
All credits entries in the BOP represent a demand for domestic currency and all debit entries
in the BOP represent supply of domestic currency.