CHAPTER .

1 INTRODUCTION OF BALANCE OF
PAYMENT
INTRODUCTION
The balance of payments reports all financial flows of a country
vis--vis the rest of the world. It is a fairly complicated balance
sheet but, in this short text, we shall present it in
quite simplified way for the absolute beginner.
AN AGGREGATE VIEW
In very aggregate terms, let's consider all "money" entering into
a country (for whatever reason and transaction) and all "money"
exiting from it. The difference between the two is the change in
the official currency reserves of the central bank.
In other terms, people from abroad bring their currency to the
central bank, obtaining the local currency in exchange. The local
people buy foreign currency in the central bank. All these
transactions can have intermediaries (as banks) but at the end,
there is a place (the "reserves" of the central bank ) that
accomodate for the differences between inflows and outflows.
Since reserves are usually small in comparison with the flows and their systematic decrease or increase create problems, as we
shall see in a moment - to a large extent,inflows and outflows
tend to be equal.

In fact, if outflows are larger than inflows, the reserves are going
down, until the central bank reacts (e.g. by devaluating the
currency). If outflows are smaller than inflows, reserves pile up.
Since they could be profitably used, there is a pressure to reduce
them (e.g. by stimulating an outflow in terms of outgoing FDI).
In absence of tight currency control and central bank activities,
the exchange rate tends to react with a spontaneous devaluation
in the first case, and with a revaluation in the second one,
helping reducing the unbalance.
THE ITEMS
Now, let's see the reasons that move money out and in. They are
the same in the two direction, since they relate to:
trade of goods;
trade of services;
income transfers(remittances

from

dividends, profits, rents from assets abroad,...);

purchases of assets (real estate, shares, bonds,...)
loans;
non-refundable aid.

emigrants,

Sometimes one distinguishes short term speculative assets

("portfolio investments" as shares bought and sold daily in stock
exchange markets) from long term productive assets (as Foreign
direct investments).
THE NET FLOWS
Indeed, we are now in the condition to introduce definitions for
the following net flows(resulting from a difference between
"out" and "in"):
merchandise balance
trade balance
current-account balance
core balance
basic balance
the balance for official financing.
These balances are included one in another as Russian
matrioshka nesting dolls. In particular:
exports less imports of physical goods = merchandise
balance;

 by adding the net trade of services (exports less imports) to

the merchandise balance, one get the trade balance.
trade balance plus net current transfer (as workers'
remittances out of wages and payments of international
aid) plus net rent, interest, profits and dividends = the
current-account balance. All other items constitute
the capital account.

The capital account is always equal to the current-account, since

it includes the accomodating items as changes in official
currency

reserves.

The

net

official

financing

comprehends changes in official currency reserves.

STYLISED

EXAMPLE

OF

THE

BALANCE

OF

PAYMENTS
The example below refers to a hypothetical country, data is in $
billion:

Item of the BoP

Net Balance Comment

$ billion

Current Account

(1) Balance of trade in goods

-25

A trade deficit

(2) Balance of trade in services

+10

A trade surplus

(3) Net investment income

-12

(4) Net overseas transfers

+8

Sum of 1+2+3+4 = Current

account balance

-19

Net outflow of income i.e.

to profits of transnational co

Net inflow of transfers per

from remittance payments

Overall this country ru

current account deficit

Financial Account
Net balance of foreign direct
investment flows
Net

balance

of

portfolio

investment flows
Net balance of short term banking
flows
Balancing item

+5

+6

-2

+2

Positive net inflow of FDI

Positive net inflow into eq

markets, property etc

Small net outflow of curr

from countrys banking syst

There to reflect errors

omissions in data calculatio

Changes to reserves of gold and

foreign currency

Overall balance of payments

+8 means that this coun

+8

gold

and

foreign

curr

reserves have been reduced

0

Key point: If a country is running a current account surplus, this

means there is a net inflow of foreign currency into their
economic system. From a balance of payments point of view, a
surplus on the current account would allow a deficit to be run on
the capital account. For example, surplus foreign currency can
be used to fund investment in assets located overseas. The
balance of payments must balance.Countries with current
account deficits can run into difficulties.
If the deficit is large and the economy is not able to attract
enough inflows of foreign investment, then their currency
reserves will dwindle and there may come a point when the
country needs to seek emergency borrowing from institutions
such as the International Monetary Fund. Trade deficits and the
resulting borrowing lead to a rise in external debt.

MEASURING THE CURRENT ACCOUNT

The current account of the balance of payments comprises
the balance of trade in goods and services plus net investment
incomes from overseas assets and net transfers.Net investment
income comes from interest payments, profits and dividends
from external assets
For example a UK firm may own a business overseas and
send back profits to Britain. This is a credit item for the
current account
Similarly, an overseas investment in the UK might
generate a good rate of return and the profits are remitted
back to another country this would be a debit item in the
account
TRADE IN GOODS AND SERVICES

Trade in goods includes items: Trade in services includes:

Manufactured goods
Semi-finished goods and
components
Energy products

Banking, insurance and

consultancy
Other financial services
including

foreign

exchange and derivatives

 Raw Materials

trading
Tourism industry

Consumer goods
(i)

Durable

goods

(washing machines)

Education

(ii) Non-durable goods

(e.g. foods)
Capital
equipment)

Transport and shipping

(e.g.

health

services
Research

goods

and

and

development
Cultural arts

INDIAS BALANCE OF PAYMENTS PICTURE SINCE

1991
Independent Indias external trade and performance had faced
severe threats many a times. The most challenging one was that
of 1991.The economic crisis of 1991 was primarily due to the
large and growing fiscal imbalances over the 1980s. Indias
balance of payments in 1990-91 also suffered from capital
account problems due to a loss of investor confidence. The
widening current account imbalances and reserve losses
contributed to low investor confidence putting the external

sector in deep dilemma. During 1990-91, the current account

deficit steeply hiked to $- 9680 million while the capital account
surplus was far below at $ 7188 million.
This led to an ever time high deficit in BoP position of India.
India initiated economic reforms to find the way out of the
growing crisis. Structural measures emphasized accelerating the
process of industrial and import delicensing and then shifted to
further trade liberalization, financial sector reform and tax
reform. Prior to 1991, capital flows to India predominately
consisted of aid flows, commercial borrowings, and nonresident
Indian deposits.

Direct investment was restricted, foreign portfolio investment

was channeled almost exclusively into a small number of public
sector bond issues, and foreign equity holdings in Indian
companies were not permitted (Chopra and others, 1995).
However, this development strategy of both inward-looking and
highly interventionist, consisting of import protection, complex
industrial licensing requirements etc underwent radical changes
with the liberalization policies of 1991. The post reform period
really eased Indias struggles with regard to external sector. This

is evident from the RBI data summarizing the BOP in current

account and capital account.
The current account which measures all transactions including
exports and imports of goods and services, income receivable
and payable abroad, and current transfers from and to abroad
remained almost negative throughout the post reform period
except for the three financial years. Until 2000-01, the current
account deficit that comprises both trade balance and the
invisible balance, remained stagnant and stood around $ 5000
million. However, for the first time since 1991, the current
account recorded surplus in its account during three consecutive
financial years from 2001-02. The deficit in current account
continued to occur from 2004-05 onwards and the growth rate
was comparatively faster. Surprisingly, the current account
deficit grew like anything since 2007-08, the period witnessed
financial crisis.
The current account balance of India during 2011-12 is recorded
to be $ - 78155 million, signifying a deficit eight times that of
the figures of 2007-08. Huge negative debits and comparatively
low positive credits caused for this negative value in current
account. Another notable feature of current account balance is
that the deficit was mounting during the previous years. Two
major items of current account are merchandise and the

invisibles. These two items generate the value of current account

balance of the country.
The net merchandise has been always found to be huge negative
figure. During 2011-12 it was recorded to be $ - 189759 million.
During the same period, our total merchandise credit was $
309774 million while our merchandise debit was $ 499533
million. This is a common feature of Indias merchandise figures
during all the years. The recent crisis of 2008 affected the trade
performance of India in a large way. Indian economy had been
growing robustly at an annual average rate of 8.8 per cent for
the period 2003-04 to 2007-08. Concerned by the inflationary
pressures, Reserve Bank of India (RBI) increased the interest
rates, which resulted in a slowdown of Indias trade flows prior
to the Lehman crisis (Kumar and Alex, 2009).

The trade flows, which are one of the important channels

through which India was affected during the recent global crisis
of 2008, started to collapse from late 2008. Merchandise trade,
software exports and remittances declined in absolute terms in
response to the exogenous external shock

CAUSES OF BOP IMBALANCES

There are conflicting views as to the primary cause of BOP
imbalances, with much attention on the US which currently has
by far the biggest deficit. The conventional view is that current
account factors are the primary cause these include the
exchange rate, the government's fiscal deficit, business
competitiveness, and private behaviour such as the willingness
of consumers to go into debt to finance extra consumption. An
alternative view, argued at length in a 2005 paper by Ben
Bernanke, is that the primary driver is the capital account, where
a global savings glut caused by savers in surplus countries, runs
ahead of the available investment opportunities, and is pushed
into the US resulting in excess consumption and asset price
inflation.

BALANCING MECHANISMS

 Rebalancing by changing the exchange rate

Rebalancing by adjusting internal prices and demand
Rules based rebalancing mechanisms

CHAPTER 2 INTRODUCTION OF
DISEQUILIBRIUM IN BALANCE OF PAYMENT
DEFINITION OF 'DISEQUILIBRIUM'
A situation where internal and/or external forces prevent market
equilibrium from being reached or cause the market to fall out
of balance. This can be a short-term by product of a change in
variable factors or a result of long-term structural imbalances
This theory was originally put forth by economist John Maynard
Keynes. Many modern economists have likened using the term
"general disequilibrium" to describe the state of the markets as
we most often find them. Keynes noted that markets will most
often be in some form of disequilibrium - there are so many
variable factors that affect financial markets today that true
equilibrium is more of an idea; it is helpful for creating working
models, but lacks real-world validation.
A fundamental disequilibrium exists when outward payments
have a continuing tendency not to balance inward payments. A
disequilibrium may occur for various reasons. Some may be
grouped under the head of structural change (resulting from
changes in tastes, habits, institutions, technology, etc.).

A fundamental imbalance may occur if wages and other costs

rise faster in relation to productivity in one country than they do
in others. Imbalance may also result when aggregate demand
runs above the supply potential of a country, forcing prices up or
raising imports. A war may have a profoundly disturbing effect
on a countrys economy.
In the traditional classical view no intervention by the
authorities was necessary to maintain external equilibrium,
except for their readiness to convert currency into gold (or
silver) upon demand. The system was supposed to work
automatically. If a country had a deficit, gold would flow out,
and the consequent reduction in the domestic money supply
would cause prices to move downward. This would stimulate
exports and tend to reduce imports.
The process would continue until the deficit was eliminated.
Classical doctrine did not embody a clear-cut theory about
international capital movements. It was usually assumed that the
trade balance (more strictly, balance on goods and services)
would be tailored to accommodate any capital movement that
occurred. Thus, if the country was exporting capital, gold flows
would cause prices to move to such a level that exports minus
imports would be equal to the capital flow; equilibrium in the
overall balance was automatically secured.

CURRENT ACCOUNT DEFICIT

Running a deficit on the current account means that an economy
is not paying its way in the global economy. There is a net
outflow of demand and income from the circular flow of income
and spending. Spending on imported goods and services
exceeds the income from exports.
Balance of payments and the standard of living
In principle, there is nothing wrong with a trade deficit. It
simply means that a country must rely on foreign direct
investment or borrow money to make up the difference
In the short term, if a country is importing a high volume
of goods and services this is a boost to living standards
because it allows consumers to buy more consumer
durables.
Balance of Payments and Aggregate Demand
When there is a current account deficit this means that
there is a net outflow of demand and income from a
countrys circular flow. In other words, trade in goods and
services and net flows from transfers and investment
income are taking more money out of the economy than is
flowing in. Aggregate demand will fall.

 When there is a current account surplus there is a net

inflow of money into the circular flow and aggregate
demand will rise.

Current account deficit suggests wider disequilibrium in the

Economy

A large current account deficit may be an indication that

the economy is too much geared towards spending (e.g.
spending on imports) and too little on exports. A current account
deficit can occur when the saving ratio falls and domestic
consumers spend more on imports.

A current account deficit may also be a sign of underlying

inflationary pressures. As domestic goods increase in price,
people buy imports instead. A current account deficit often
occurs towards the end of a boom when domestic demand is
rising faster than domestic supply.

It may also be an indication the country is losing

competitiveness. This is especially important in a fixed
exchange rates. Southern European countries experienced record
current account deficits in 2008-10 due to becoming
uncompetitive within the fixed exchange rate the Euro.

A deficit may also be a reflection, saving is less than

investment and investment is being financed by capital inflows
from abroad.
OVERALL

EQUILIBRIUM

IN

BALANCE

OF

PAYMENTS
In a floating exchange rate, the two components of the Balance
of Payments should balance each other out. If the UK has a
deficit on the current account of 38bn. Then in a floating
exchange rate, the financial account should have a surplus of
38bn. This is because financial outflows must be matched by
financial inflows.Example, if we buy more imported goods than
exported goods then we need financial flows (e.g. hot money,
long term capital investment to finance the purchase of imports)

BALANCE OF PAYMENTS DISEQUILIBRIUM AND

FIXED EXCHANGE RATES
When a country has a fixed exchange rate, there is more likely
to be a balance of payments problem. For example, in 2011,
several Euro countries were relatively uncompetitive. However,
because they are in the Euro, it is not possible to devalue against
other European countries. Therefore, they are stuck with exports
which are too expensive. Therefore, we tend to see a large
current current account deficit.

GLOBAL IMBALANCES
Balance of payments disequilibrium can be causes of global
imbalances e.g. Large flow of capital from China to US.Some
argue this was a factor in credit crunch of 2008. Large flows of
capital from China to US kept yields on securities and bonds
artificially low, creating a bubble in certain risky assets.
The current account can also be seen as an imbalance between
domestic savings and domestic investment. If domestic saving is
lower than domestic investment, then we will see a current
account deficit. The excess domestic investment will be
financed by capital inflows from abroad. See: Current account =
Saving investment
Recommendations and conclusions The study has investigate the
relationship between domestic credit and the BoP, and has
established that domestic credit indeed has a significant negative
relationship with the BoP in the case of Uganda. In light of these
results, it is not surprising that the authorities have placed
ceilings on the domestic credit creation, particularly net credit to
government to prevent macroeconomic instability. We also

realised that economic growth has negative impact on the

current account.

This appears to be consistent with the high growth rates

registered in Uganda since the launching of the ERP. At the
same time, higher growth rate is considered to be good for
current account deficit sustainability if it eventually enables the
country to service its external debt. The results from the
investigation suggest that trade liberalisation may have a
positive impact on overall balance. Therefore, government needs
to encourage export diversification to widen the export base.

CHAPTER.3 BOP DIS-EQUILIBRIUM &

CORRECTIVE MEASURES
MEANING OF BALANCE OF TRADE
The balance of trade of a country is the difference between the
value of its exports over a period, and the value of its imports.
If, in a given period, the value of its exports is greater than the
value of its imports, the country is said to have a favorable
balance of trade. If, on the other hand, the value of its imports is
greater than the value of its exports, the country is said to have
an unfavorable balance of trade. In the past, the emphasis was
always on a favorable balance of trade because that meant a
great flow of gold or some other form of money into the country
and in those days they identified gold and other precious metals
with the real wealth of the country. In balance of trade, we take
into account only the commodities that enter into transaction. In
other words, we take into account the import and export of
commodities. We include only visible items.
Methods of Correcting Disequilibrium in Balance of
Payments

A continuous deficit in balance of payments will have to be

corrected eventually. There are many methods for correcting the
disequilibrium. Some important methods are discussed below.
1.

Imports can be restricted. This may be done by fixing

import quotas and in some cases by prohibiting the import of
some non-essential commodities. However, a disadvantage
of this method is that people may be denied some important
foreign goods and sometimes it may affect the supply of raw
materials greatly needed for industry.

2.

Measures can be taken to stimulate exports. This can be

done by developing industries in the export sector.
Government can provide both financial and non-financial
assistance to them. Increased exports will earn foreign
exchange to make up the deficit.

3.

A country, which is in balance of payments deficit, can

borrow from other countries. It can borrow from some
friendly countries or from international institutions like the
International Monetary Fund. But this method will solve the
problem only for the time being. It is not a permanent
solution.

4.

It may be possible to get aid by way of outright gift from

some other country. The U.S.A. helped many countries in
Europe after World War II by giving them outright gifts.

Even today, most of the underdeveloped nations receive such

gifts from the rich countries of the world.
An advantage of the method is that there is no problem of
repayment. But the disadvantage is that gifts may not come
in large quantities and there is the element of uncertainty.
5.

Devaluation of the currency is another method. This will

stimulate exports. However, if other nations also play the
same trick, it may result in bad consequences.
1.DEFLATION:
Deflation is the classical medicine for correcting the deficit
in the balance of payments. Deflation refers to the policy of
reducing the quantity of money in order to reduce the prices
and

the

money

income

of

the

people.

The central bank, by raising the bank rate, by selling the

securities in the open market and by other methods can
reduce the volume of credit in the economy which will lead
to a fall in prices and money income of the people.
Fall in prices will stimulate exports and reduction in income
checks

imports.

Thus,

deflationary

policy

restores

equilibrium to the balance

(a) by encouraging exports through reduction in their prices
and

(b) by discouraging imports through the reduction in

incomes-at-home.
Moreover, a higher interest rate in the domestic market will
attract foreign funds which can be used for correcting
disequilibrium.
However, deflation is not considered a suitable method to
correct adverse balance of payments because of the
following reasons:
(a) Deflation means reduction in income or wages which is
strongly opposed by the trade unions,
(b) Deflation causes unemployment and suffering to the
working class,
(c) In a developing economy, expansionary monetary policy
rather than contractionary (deflationary) monetary policy is
required

to

meet

the

developmental

needs.

2.DEPRECIATION:
Another method of correcting disequilibrium in the balance
of payments is depreciation. Deprecation means a fall in the
rate of exchange of one currency (home currency) in terms
of

another

(foreign

currency).

A currency will depreciate when its supply in the foreign

exchange market is large in relation to its demand. In other
words, a currency is said to depreciate if its value falls in

terms of foreign currencies, i.e., if more domestic currency

is

required

to

buy

unit

of

foreign

currency.

The effect of depreciation of a currency is to make imports

dearer and exports cheaper. Thus, depreciation helps a
country to achieve a favourable balance of payments by
checking

imports

Exchange

and

depreciation

stimulating

exports.

is

automatic:

It works in a flexible exchange rate system and can correct a

mild adverse balance of payments if the country's demand
for imports and the foreign demand for its exports are fairly
elastic. But the method of exchange depreciation has the
following-defects:
(i) It is not suitable for a country which follows a fixed
exchange-rate-system.
(ii) It makes international trade risky and thus reduces the
volume-of-trade.
(iii) The terms of trade go against the country whose
currency depreciates because the foreign goods have become
costlier than the local goods and the country has to export
more

to

pay

for

the

same

volume

of

imports.

(iv) Experience of certain countries has indicated that

exchange depreciation may generate inflationary pressure by
increasing the domestic price level and money income.
(v) The success of the method of exchange depreciation
depends upon the cooperation of other countries. If other

countries also start depreciating their exchange rates, then

these

methods

will

not

benefit

any

country.

3.DEVALUATION:
Devaluation refers to the official reduction of the external
values of a currency. The difference between devaluation
and depreciation is that while devaluation means the
lowering of external value of a currency by the government,
depreciation means an automatic fall in the external value of
the currency by the market forces; the former is arbitrary and
the

latter

is

the

result

of

market

mechanism.

Thus, devaluation serves only as an alternative method to

depreciation. Both the methods imply the same thing, i.e.,
decrease in the value of a currency in terms of foreign
currencies.
Both the methods can be used to produce the same effects;
they discourage imports, encourage exports and thus lead to
a

reduction

in

the

balance

of

payments

deficit.

The success of the method of devaluation depends upon the

following-conditions-:
(i) The elasticity of demand for the country's exports should
be-greater-than-unity.
(ii) The elasticity of demand for the country's imports should
be-greater-than-unity.
(iii) The exports of the country should be non-traditional and
the

increasingly

demanded

from

other

countries.

(iv) The domestic price should not rise and should remain
stable-after-devaluation.
(v) Other countries should not retaliate by resorting to
corresponding devaluation. Such a retaliatory measure will
offset-each-other's-gain.
Devaluation

also

suffers

from

certain

defects:

(i) Devaluation is a clear revelation on the country's

economic-weakness.
(ii) It reduces the confidence of the people in country's
currency and this may lead to speculative outflow of capital.
(ii) It encourages inflationary tendencies in the home
country.
(iv)It
(v)It

increases
involves

the
large

burden
time

lag

of
to

foreign
produce

debt.
effects.

(v) It is a temporary device and does not provide a

permanent remedy to correct adverse balance of payments.
4. EXCHANG-CONTROL:
Exchange control is the most widely used method for
correcting disequilibrium in the balance of payments.
Exchange control refers to the control over the use of foreign
exchange

by

the

central

bank.

Under this method, all the exporters are directed by the

central bank to surrender their foreign exchange earnings.

Foreign exchange is rationed among the licensed importers.

Only

essential

imports

are

permitted.

Exchange control is the most direct method of restricting a

country's imports. The major drawback of this method is that
it deals with the deficit only, and not its causes. Rather it
may aggravate these causes and thus may create a more
basic disequilibrium. In short, exchange control does not
provide a permanent solution for a chronic disequilibrium.

FACTORS AFFECTING BALANCE OF PAYMENTS

Export

of

Goods

and

Services

The Prevailing Exchange Rate of the Domestic Currency:

A lower value of the domestic currency results in the
domestic price getting translated into a lower international
price. This increases the demand for domestic goods and
services and hence their export. This is likely to result in a
higher demand for the domestic currency. A higher exchange
rate

would

have

an

exactly

opposite

effect.

Inflation-Rate:
The inflation rate in an economy vis--vis other economies
affects the international competitiveness of the domestic
goods and hence their demand. Higher the inflation, lower
the competitiveness and lower the demand for domestic
goods. Yet, a lower demand for domestic goods and services

need not necessarily mean a lower demand for the domestic

currency.
If the demand for domestic goods is relatively inelastic, then
the fall in demand may not offset the rise in price
completely, resulting in an increase in the value of exports.
This would end up increasing the demand for the local
currency. For example, suppose India exports 100 quintals of
wheat to the US at a price of Rs.500 per quintal. Further,
assume that due to domestic inflation, the price increases to
Rs.530 per quintal and there is a resultant fall in the quantity
demanded to 96 quintals. The exports would increase
fromRs.50,000
World

to

Prices

Rs.52,800
of

instead
a

of

falling.

Commodity

: If the price of a commodity increases in the world market,

the value of exports for that particular product shows a
corresponding increase.
This would result in an increase in the demand for the
domestic currency. A fall in the demand for domestic
currency would be experienced in case of a reduction in the
international price of a commodity. This impact is different
from the previous one. The previous example considered an
increase in the domestic prices of all goods produced in an
economy simultaneously, while this one considers a change
in the international price of a single commodity due to some

exogenous-reasons.
INCOMES-OF-FOREIGNERS:
There is a positive correlation between the incomes of there
sidents of an economy to which the domestic goods are
exported, and exports. Hence, other things remaining the
same, an increase in the standard of living (and hence, an
increase in the incomes of the residents) of such an economy
will result in an increase in the exports of the domestic
economy Once again, this would increase the demand for the
local-currency.
Trade-Barriers:
Higher the trade barriers erected by other economies against
the exports from a country, lower will be the demand for its
exports-a-hence,-for-its-currency.
Imports-of-Goods-and-Services
Imports of goods and services are affected by the same
factors that affect the exports. While some factors have the
same effect on imports as on exports, so of them have an
exactly-opposite-effect.
Value

of

the

Domestic

Currency:

An appreciation of the domestic currency results in making

imported goods and services cheaper in terms of domestic
currency, hence increasing their demand.

The increased demand imports results in an increased supply

of the domestic currency depreciation of the domestic
currency
Level

have
of

an

opposite
Domestic

effect.
Income

: An increase in the level of domestic income increases the

demand for all goods and services, including imports and it
results in an increased supply of the domestic currency.
CAPITAL-ACCOUNT-TRANSACTIONS
Four major factors affect international capital transactions.
The foremost is the rate of return which can be earned on the
investments as compared to the returns that can be earned on
domestic investments. The higher the differential returns
offered by a country, the higher will be the capital inflows.
Another factor is the additional risk that a companies these
returns. More the risk, lower the capital inflows.
Diversification across countries may offer some extra benefit
in addition to the returns offered by a particular investment.
This benefit arises from the fact that different economies
may be at different stages of economic cycle at a given time,
thus making their performance unrelated.

Higher the diversification benefits, higher the inflows. One

more factor, which has a very significant affect on these
transactions, is the expected movement in the exchange
rates. If the exchange rates are quite stable, or the movement
is expected to be in the investors' favor, the capital inflows
will be higher.

CONCLUSION:
In this project of BOP Disequilibrium & corrective measure
conclude that BOP is important factor in companys balance
sheet. In the developing country & developed country the BOP
is gives the idea of surplus & deficits in their country in many
sectors. BOP disequilibrium have some corrective measures
.

BIBLOGRAPHY/ WEBILOGRAPHY
www. Google. Com
www.RBI.com