BALANCE OF PAYMENT TRADE

- Prepared quarterly or annually. 2 Classifications

- Record of monetary transactions between; 1. Import – goods and services that are INVISIBLE
1. A country (residents) 2. Export – goods and services that are VISIBLE
a. Exporters (individual) Ex. Shipping, travel and
b. Corporate (exporters) transportation.
c. Government INCOME
 Monitoring (BSP which is under of - Also known as Primary Income
the DOF) - Expenses of a country’s income from investments to
 Sort of guarantor other countries and vice versa.
2. Rests of the world (trading partners) Affecting the Primary Income
1. Interest income (of our country from other foreign
MEANING partners)
Record – books (Dr./ Cr.) 2. Interest expense (of other countries from our
- Double entry bookkeeping. country)
Monetary – reserves 3. Employee compensation – working on foreign
Monetary Transactions entities here in the Philippines
1. Making and receiving payments 4. FDI
2. Exchanges 5. Portfolio
a. Money vs. money 6. Loan
b. Money vs. goods
c. Goods vs. goods CASH TRANSFER
- Also known as Secondary Income
BOP COMPONENTS - It is unilateral or one way only
1. Current Account - Receive economic value but there’s nothing in return
2. Financing Account Ex.
3. Capital Account 1. OFW remittances
FORMULA: 2. Military aid
BOP = CuA + FA + CaA 3. Economic grant/ aid
Where:
CuA = Balance of Current Account CURRENT ACCOUNT COMPUTATION
FA = Balance of Financing Account *(E – M)
CaA = Balance of Capital Account Goods
Export = +555 POSITIVE = CREDIT
*Theoretically, BOP is always ZERO. But in actual, BOP can Import = - 605 NEGATIVE = DEBIT

result to SURPLUS or DEFICIT. Bot - Goods = - 80

Services
CURRENT ACCOUNT Export = + 185
FORMULA: Import = - 215
CuA = (X – M) + NY + NCT Bot - Services = - 30
Where: Balance Of Trade - 110
X = Export
M = Import *NY = Primary income
NY = Net Income from abroad (Interest/Dividends/etc) + 10
NCT = Net Current Transfer *NCT = Secondary income - 35

Sub Components of CURRENT ACCOUNT Balance of Current Account - 135

1. Trade – selling and buying goods w/ foreign
countries FINANCING ACCOUNT
2. Income – primary income - June, 1999
3. Net transfer/ Cash transfer – secondary income - Outlines the increase or decrease of financial assets.

* Primary income and secondary income are the accounts to

be used.
Sub Components of FINANCING ACCOUNT
1. FDI (Foreign Direct Investment) – long term
investments.
- Other countries invest in our country
Equity capital (to get a share of a company)
- Ex. Common shares
Preferred shares – not participating in the
management

2. Portfolio – short term investments

- Right mixture
- Bonds and stocks
Equity shares (bonds, monetary instrument, and savings)

Bonds vs. Stocks

Bonds
Stocks – equity capital/ share to company
- Issuances of share certificate
- Cash/ stock option

3. Reserves
Reserve Beg. xx
ADD: Surplus xx
LESS: Deficit (xx)
Reserve End. xx

4. Etc. – financial derivatives (sort of contracts)

- Monetary instruments (money market instruments)
Ex. Bills of deposit
BANKS
Certificate of deposit
- Debt instruments (promissory note)
- Trade credits

FINANCING ACCOUNT COMPUTATION

FDI (net) +55
Portfolio Investment (net) - 15
Reserve + 45
Commission + 25
Balance of Financing Account +110

CAPITAL ACCOUNT
- Miscellaneous account
- Capital (transfer of ownership/ does not affect the
economy)
- Non Produce of Financial items (exchange if
reserve is gone)
- (+) = asset is decreased; Capital is purchased by
other country
- (-) = asset id increased

*Error and omission is just a balancing figure.

BOP = (-135) + 25 + 110

BOP = 0