Balance of Payments

• PRESENTATION ON BALANCE OF PAYMENTS
PRESENTED BY:-
PUNNET KUMAR PANDEY
DEEPAK RAJ GUPTA
• INTRODUCTION:-
 Balance of payment and Balance of trade are the two very

important concepts in the field of international trade.
Balance of trade is a narrow term and it deals with export
and import of visible(i.e. which can be seen and felt) items
only.
But Balance of payments deals with export and import of
both visible and invisible items.
• MEANING:-
• Balance of payment is a double entry system of record of all
economic transaction between the residents of a country
and the rest of the world carried out in a specific period of
time.
• In other words, it takes into consideration, the
export and import of goods of all kinds including
consumer goods, consumer durables, fast moving
consumer goods, capital goods, machinery,
technical equipments and services like banking,
insurance, tourism, transportation, and payments of
salaries, benefits, interest, dividends etc.
COMPONENTS OF BALANCE OF PAYMENTS
1. CURRENT ACCOUNT :- Current account include visible
exports and imports and invisible items like receipts &
payments for various services like banking, banking,
insurance, tourism, travel and many more.
The two main items of the current account are
merchandise imports and exports and export and import of
visible item.
Merchandise export includes sales of goods to foreign
countries and purchase of goods from foreign countries.
Invisible export and import include the sale of services to
the foreign like insurance, tourism, transportation, banking,
financial services, salaries, interest and dividends. Payment
of loan and investment of foreign in our country.
2. CAPITAL ACCOUNT:- It is divided into three parts:-
(i) Private capital:- Its is further divided into :-
 Short term :- Short term includes investment with maturity period of
one year or less than it.
 Long term :- It includes investment with maturity period of more than
one year.
Short term and long term includes:-
 Foreign investment
 Short term and long term loan
 Foreign currency deposit
(ii) Banking capital:- Banking capital covers movements in the external
financial assets and liabilities of commercial and co-operative bank
authorized to deal in foreign exchange.
(iii) Office Capital:- RBI holding in term of foreign currency and drawings
rights held by government can be categorized into loans, amortization
and miscellaneous receipts and payments.
• 3. UNILATERAL TRANSFER ACCOUNT:-
Unilateral transfer are “ Giving the Gifts”. These
includes government grants, remittances, disaster
relief etc. One country gives this to other country in
some uncertain situations as well as to make good
relation with that country.
4. OFFICE SETTLEMENT ACCOUNT:-
Official settlement account represents the official
sales of foreign currencies and other reserves to
foreign countries or official purchase of foreign
currencies or other reserves form foreign countries.
DISEQUILIBRIUM IN BALANCE OF PAYMENTS:-
MEANING:- When the demand for and supply of

foreign currency of a country are equal it is
viewed as the balance of payments of that
country is at equilibrium position. Surplus
position (i.e. supply of foreign currency is
more than that of demand for foreign
currency ) or deficit position (i.e. demand for
foreign currency is more than that of supply
of foreign currency) represents the
disequilibrium in balance of payments.
CAUSES OF DISEQUILIBRIUM IN BALANCE OF
PAYMENTS
The causes of disequilibrium in balance of payments are
economic factors, political factors and social factors.
ECONOMIC FACTORS :- The economic factors responsible for
disequilibrium are development disequilibrium, cyclic disequilibrium,
and structural disequilibrium.
 DEVELOPMENT DISEQUILIBRIUM:- Developing countries mostly take
up the development activities like industries, construction of roads,
bridges, power plants and other infrastructural facilities like hospital
educational institute, etc. These activities primarily increases the
import of capital goods, machinery, equipments. Thus, developmental
expenditure results in increase of capital goods and consumer goods
import. This, in turn, leads to deficit in balance of payments.
 CYCLIC DISEQUILIBRIUM:- It is concerned with the
fluctuations in import and export due to business
cycle. It increases the import of capital goods in
order to establish new or expand the existing
production capacity. Thus, the boom condition
increases the import of capital goods in order to
establish new or expand existing production
capacities. In contrast, the depression conditions
contribute to the growth in exports as the
production is higher than the aggregate demand
and consumption. Both boom and depression
conditions results in disequilibrium in the balance of
payments.
 structural disequilibrium:- structural changes in the
economy include shift from agricultural sector to
industrial & service sector, development of
alternative sources of supply, development of
effective substitutes, exhaustion of productive
resources, changes in transport channels and cost.
These structural changes enhance the import of
capital goods and consumer goods of the changed
direction/structure, thus, resulting in balance of
payments deficit.
• POLITICAL FACTORS:- Political factors like political
uncertainties, instability, internal disturbances and
external war create a threatening situation for
industry and investment. Hence, these factors
contribute to the outflow of the capital and decline
in domestic production and imports of goods. They
result deficit in balance of payments . Ex:- Sri Lanka
and Pakistan are examples of these situation.
• SOCIAL FACTORS:- The addition to and dropout
from the existing culture, changes in taste, fashion
and preference of people contribute to the increase
in imports and deficit in balance of payments.
THANK YOU

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• PRESENTATION ON BALANCE OF PAYMENTS

 Balance of payment and Balance of trade are the two very

MEANING:- When the demand for and supply of

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