Balance of Payment

Balance of
Payment
By Herashchenko Karina 74671
The balance of payments (BOP) is the
method countries use to monitor all
international monetary transactions at a
specific period. Usually, the BOP is
calculated every quarter and every
calendar year.
All trades conducted by both the private

and public sectors are accounted for in the
BOP to determine how much money is going
in and out of a country. If a country has
received money, this is known as a credit,
and if a country has paid or given money,
the transaction is counted as a debit.
When all the elements are correctly included in
the BOP, it should be zero in a perfect scenario.
This means the inflows and outflows of funds
should balance out. However, this does not
ideally happen in most cases.
A BOP statement of a country indicates whether
the country has a surplus or a deficit of funds,
i.e. when a country’s export is more than its
import, its BOP is said to be in surplus. On the
other hand, the BOP deficit indicates that its
imports are more than its exports.
Why is the Balance
of Payment (BOP)
vital for a country?
A country’s BOP is vital for the following
reasons:
The BOP of a country reveals its financial
and economic status.
A BOP statement can be used to determine
whether the country’s currency value is
appreciating or depreciating.
The BOP statement helps the government
to decide on fiscal and trade policies.
It provides important information to
analyse and understand the economic
dealings with other countries.
Elements of BOP
Current
account
The current account monitors the inflow and outflow of
goods and services between countries. This account covers
all the receipts and payments made with respect to raw
materials and manufactured goods.
It also includes receipts from engineering, tourism,
transportation, business services, stocks, and royalties from
patents and copyrights. When all the goods and services are
combined, they make up a country’s Balance Of Trade (BOT).
There are various categories of trade and transfers which
happen across countries. It could be visible or invisible
trading, unilateral transfers or other payments/receipts.
Trading in goods between countries is referred to as visible
items, and import/export of services (banking, information
technology etc.) are referred to as invisible items.
Capital
Account
All capital transactions between the countries are monitored through the capital account.
Capital transactions include purchasing and selling assets (non-financial) like land and
properties.
The capital account also includes the flow of taxes, purchase and sale of fixed assets etc.,
by migrants moving out/into a different country. The deficit or surplus in the current
account is managed through the finance from the capital account and vice versa. There
are three major elements of a capital account:
Loans and borrowings – It includes all types of loans from the private and public
sectors located in foreign countries.
Investments – These are funds invested in corporate stocks by non-residents.
Foreign exchange reserves – Foreign exchange reserves held by the country’s central
bank to monitor and control the exchange rate do impact the capital account.

Financial
account
The flow of funds from and to foreign
countries through various investments in
real estate, business ventures, foreign
direct investments etc., is monitored
through the financial account. This
account measures the changes in the
foreign ownership of domestic assets and
domestic ownership of foreign assets.
Analysing these changes can be
understood if the country is selling or
acquiring more assets (like gold, stocks,
equity, etc.).
The balance of payments is a
crucial metric for decision-making
at the national level. Professionals
like economists, federal
accountants, policymakers and
others use the data from a
nation's balance of payments to
adapt production and exportation
to increasing or decreasing price
levels, interest rates, inflation rates
and employment rates.
Overall, the balance of
payments is a complex and
dynamic indicator that reflects a
country's economic relationships
with the rest of the world. By
analyzing its components and
trends, policymakers and
economists can gain insights
into a country's economic health
and its position in the global
economy.
Questions
1. Which elements of BOP do you
know?
2.Why the Balance of Payment is

important?
Thank
you for
attention!

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2.Why the Balance of Payment is

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