Balance of payments, Macroeconomics


Balance of Payments 

All countries have economic transactions with other countries. These consist of import and export of goods and services, official and private gifts and donations, lending and borrowing abroad and investment abroad in financial and physical assets. The balance of payments (BoP) is a record of all transactions that a country has with the rest of the world during a year.

The BoP is a regular double-entry accounting record with transactions that increase the availability of foreign exchange recorded as credits and those that use up foreign exchange recorded as debits. Thus exports are a credit item while imports are a debit item; lending abroad is a debit item while borrowing from abroad is a credit item. Applying this logic, increases in the foreign exchange reserves of a country are a debit item while decreases are a credit item.

The BoP is divided into a current account consisting of transactions involving imports, exports, remittances and gifts and a capital account which consists of all transactions which affect the country's foreign exchange assets or liabilities. Within each, further subgroups can be made. For instance, the "merchandise account" relates to trade in goods only.

The BoP being a double entry account is by definition always in balance. When we talk of balance of payments deficit or surplus we are focusing on a particular group of transactions such as merchandise trade or the entire current account or all transactions other than changes in official reserves, etc. A variety of definitions of 'imbalance' in external account are therefore possible each suited for a specific purpose. We will discuss these later in the book. 

Posted Date: 9/11/2012 6:47:36 AM | Location : United States

Related Discussions:- Balance of payments, Assignment Help, Ask Question on Balance of payments, Get Answer, Expert's Help, Balance of payments Discussions

Write discussion on Balance of payments
Your posts are moderated
Related Questions
How are the qualitative aspects of development measured? Development includes the evolution of more safe, stable, participatory and only societies. This involves capacity deve

The weights of a sample of five boxes being sent by FedEx are: 48, 24, 28, 12, and 40. (a) Compute the range. (b) Compute the mean deviation. (c) Compute the standard devi

Q. Monetary base and the supply of money? It isn't possible for central bank to print and distribute money -which would increase their debt without increasing their assets. Rat

The Price ceiling is the law that sets a maximum price below the equilibrium market price, but a price floor is the law that sets a maximum price above the market equilibrium price

Classify each of the following as employed, unemployed, or not in the labor force. a. Beth is not working; she applied for a job at Wal-Mart last week and is awaiting the result

i have assignment due within less than 24 hours if i submit assignment can i get it back before 24 hours?

Suppose that a public park is visited by people living in five concentric zones around the park. Each zone has a population of 5000, and the total travel cost for a visit to the pa

Consider a market for fish whose market demand and market supply for fish are specified as Qd = 300 - 2.5 P and Qs = - 20 + 1.5 P respectively. The government decides to impose a p

Describe the Structural unemployment Individuals who are unemployed as their skills are no longer in demand where they live. This kind mainly results in longer spells and may r