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9,10 BOP Revised
9,10 BOP Revised
9,10 BOP Revised
Introduction
The measurement of all international economic transactions between the residents of a country and foreign residents is called the balance of payments (BOP) The two major sub accounts of the balance of payments are: Current account Financial account
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Three main elements to the process of measuring international economic activity include:
Identifying what is and is not an international economic transaction Understanding how the flow of goods, services, assets, and money creates debits and credits to the overall BOP Understanding the bookkeeping procedures for BOP accounting
BOP Pattern
1. Current Account A. Trade in goods and services (merchandise etc) Goods- 1. Exports 2. Imports b. Services-1. Transportation (freight, passenger) 2. Travel 3. other Services (postal, telecom, financial, cultural, IT, Insurance etc)
B. Financial Account
a. Direct Investment 1. Abroad (direct investors of reporting country with direct investment enterprises abroad (10% or above) 2. In Reporting Country (for investment in the reporting country)
BOP
b. Portfolio Investment 1. Assets (holdings of residents of reporting country- equities, debentures, money market instruments, financial derivatives) 2. Liabilities (for investments into the reporting country)
BOP
C. Other investments Assets (Held by residents of the reporting country - trade credits, repurchase agreements, deposits and currency) Liabilities ( for liabilities of residents of the reporting country)
BOP
d. Reserve assets (Assets with country s monetary authorities- monetary gold, SDRs, reserve positions in IMF, foreign currency, deposits and securities) e. Errors and Omissions (Balancing Item)
Major Items of India's balance of Payments (April-December, 2008) (In $ million) April-December (2008-09) (P) Exports Imports Trade Balance Invisibles, net Current Account Balance Capital Account* Change in Reserves# (+ indicates increase;- indicates decrease) 133,527 238,864 -105,337 68,868 -36,469 16,089 20,380 April-December (2007-08) (PR) 113,614 182,894 -69280 53772 -15508 82,682 -67,174
Including errors & omissions; # On BoP basis excluding valuation; P: Preliminary, PR: Partially revised. R: revised
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Portfolio Investment
This is the net balance of capital that flows in and out of the country but does not reach the 10% ownership threshold of direct investment It is capital invested in activities that are purely profit-motivated rather than ones made in the prospect of controlling or managing the investment These have shown much more volatile behavior than net direct investments over the past decade
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Capital Flight
Capital flight is the sudden and shocking outflow of capital from a nation s economy in which it is perceived there is political, economic, or currency crises forthcoming
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Other indictors
Country debt composition, size Composition of imports- whether a country is consuming or investing borrowed funds Payments balance-Reserves- total and changes in reserves