Imports Favourable BOT When the total value of commodity exports of a country exceeds the total value of commodity imports of that country, it is said that the country has a ‘favourable’ balance of trade. Unfavourable BOT If total value of commodity exports of a country is less than the total value of commodity imports of that country, that country is said to have an ‘unfavourable’ balance of trade. . .
Balance of Payments (BOP) BoP is a systematic record of a country’s economic and financial transactions with the rest of the world over a period of time. When a payment is received from a foreign country, it is a credit transaction while a payment to a foreign country is a debit transaction. The principal items shown on the credit side are exports of goods and services, transfer receipts in the form of gift etc., from foreigners, borrowing from abroad, foreign direct investment and official sale of reserve - - International Economics assets including gold to foreign countries and international agencies. The principal items on the debit side include imports of goods and services, transfer payments to foreigners, lending to foreign countries, investments by residents in foreign countries and official purchase of reserve assets or gold from foreign countries and international agencies.
. . . Components of BOPs The credit and debit items are shown vertically in the BOP account of a country.
Horizontally, they are divided into three categories, i.e. a) The current account, b) The capital account and c) The official settlements account or official reserve assets account. a) The Current Account: It includes all international trade transactions of goods and services, international service transactions (i.e. tourism, transportation and royalty fees) and international unilateral transfers (i.e.
gifts and foreign aid). b) The Capital Account: Financial transactions consisting of direct investment and purchases of interest- bearing financial instruments, non- interest bearing demand deposits and gold fall under the capital account. c) The Official Reserve Assets Account: Official reserve transactions consist of movements of international reserves by governments and official agencies to accommodate imbalances arising from the current and capital accounts. The official reserve assets of a country include its gold stock, holdings of its convertible foreign currencies and Special Drawing Rights (SDRs) and its net position in the International Monetary Fund (IMF).
Balance of Payment (BOP) Account Chart Credit (Receipts) – Debit (Payments) = Balance [Deficit (-) , Surplus (+)] Deficit if Debit > Credit . . . Balance of Payments Disequilibrium The BoP is said to be balanced when the receipts (R) and payments (P) are just equal, i.e, R / P = .