BALANCE OF PAYMENTS

International Finance Presentation

BOP- INTRODUCTION
BOP is a standard double entry accounting record to
capture all the transactions of an economy with the rest
of the world.

BOP is a summary of all economic transactions

between residents of one country and non-residents for
a given period of time usually one year.
BOP- PURPOSE
Keeping track of country’s foreign receipts and
payments

Strengths & Weakness

Gain & Loss

Facilitates Future policy formulation

 COMPONENTS OF BOP
Current account

Capital account

Financial account

Net errors and omissions account

Reserves and related items: official reserve account

 Current account
Net export/import of goods (trade balance)
Net export/import of services
Net income (investment income from direct and
portfolio investment plus employee compensation)
Net transfers (sums sent home by migrants and
permanent workers aboard, gifts, grants and pensions)
 Capital account

Capital transfers related to the purchase and

sale of fixed assets such as real estate
 Financial account

Net foreign direct investment

Net portfolio investment

Other financial items

NET ERRORS AND OMISSIONS
ACCOUNT

Missing data such as illegal transfers

 RESERVES ACCOUNT

Changes in official monetary reserves including gold,

foreign exchange, and IMF position.
TRADE DEFICIT AND TRADE SURPLUS
IN BOP

BOT = EXPORT (X) – IMPORT (M)

IF X > M = Trade surplus

IF C < M = Trade deficit
ADJUSTMENT OF BOP IMBALANCES

If there is a BOP deficit, the monetary authority takes

measures to reduce the domestic expenditures to
eliminate BOP deficit.
POLICIES ADOPTED FOR REDUCING
BOP DEFICIT

1- Monetary Policy

2- Fiscal Policy

3- Trade Policy

4- Devaluation of Exchange rate