Economics Tutorial #2
The Balance of Payments

by Vinaya HS on August 7, 2006

in The SP Jain Blog

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The Balance of Payments (BoP) is the financial statement of account for the whole country. It records economic transactions (i.e. financial relations) between the economy as a whole and the rest of the world.

The BoP is the sum of two accounts:

  1. The Current Account and
  2. The Capital Account

The Current Account involves the import and export of goods and services as well as transfer payments. It is the sum of:

  1. Net of Trade
  2. Net of Remittances
  3. Net of Tourism
  4. Net of Services Payment
  5. Net of Interest
  6. Net of Profits

The Trade Account includes item 1. The Invisibles Account, so called because these accounts do not involve the physical movement of goods into and out of the country, includes items 2 to 6. The Current Account is said to be in deficit when it is negative and in surplus when it is positive.

The Capital Account deals with the movement of funds for investments and loans into and out of a country. It is the sum of:

  1. Borrowings or Debt and
  2. Investment or Capital

Borrowings include:

  1. Official Aid
  2. External Commercial Borrowing
  3. Government Borrowing
  4. Foreign Currency Non-Resident accounts
  5. FII money in debt

Investments include:

  1. FDI
  2. FII money in equity
  3. ADRs / GDRs
  4. Acquisition of shares in M & A
  5. Private Equity
  6. Venture Capital

The latest figures for each of the above items can be found on the Reserve Bank of India’s website.

[Blogged from 26-2-05, my hostel room]




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{ 4 comments… read them below or add one }

Anoop August 8, 2006 at 7:55 AM

Lo!!! ee economics bagge baribeda kano..vododukke torture!!!! naanu ninn blogs bagge market maadthaaiddene neenu chennagi baritheeya andbittu neenu nodudre economics bagge bardbittu bore hodustheeya..nyway

Goutham August 9, 2006 at 5:45 PM

Vinaya.. you seem to be slipping away into an insane world. please hold on to something. i can’t see you slipping into a bottomless well like this.

sunil katiyar May 5, 2008 at 7:10 PM

it is not a full information about BOP give me full info. because i am to present of it

Subhransu August 11, 2009 at 1:17 PM

This is one of the simplest explaination of BOP. Thanks for keeping taht in here…

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