Component of balance payments, Macroeconomics

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Component of balance payment:

BOP is a statement  that summarises all the economic transactions between residents (individuals, companies and other organisations) of the home country  and those of all other countries. BOP accounting  uses  the  system of double-entry book-keeping meaning  thereby that every debit and credit in the account is also represented as a credit or debit somewhere else. Current Account and Capital Account are the  two most important components of BOP. The following  is a brief review of  the concepts.

BOP on Current Account kcords flows of goods and services, and unilateral transfers such as gifts. The merchandise trade account is a major part of BOP for most countries. 1f merchandise exports of  a  country exceeds  its  Conversely, if  imports exceeds exports,  an unfavourable  balance of trade arises. In  short, the difference between such exports and imports is termed as trade balance.

Non-merchandise items are known as invisibles. These are sub-divided into services, investment income and  transfer payments. Services include travel and tourism, transportation, financial,  insurance, government and a variety of miscellaneous services. For instance, India's software services have recently been the fastest growing  services exports.  Investment income refers to receipts and payments of dividends, interest and profit arising out of Indian investment abroad and  foreign investment in India. Transfer payments usually are in the nature of foreign aid, grants, gifts and  foreign workers' remittances to their home countries. NRI's  remittances  are  significant component of  transfer payments in India.

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