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The Balance Of Payments of a country is a systematic record of all economic transactions between the residents of a country and the rest of the world. It presents a classified record of all receipts on account of goods exported, services rendered and capital received by residents and payments made by them on account of goods imported and services received from the capital transferred to non-residents or foreigners. Reserve Bank of India (RBI)
Definition
Importance of BoP
The BoP is an important indicator of pressure on a countrys foreign exchange rate . The BOP helps to forecast a countrys market potential, especially in the short run.
Contents of BoP
Current account Capital account Financial account Net errors and omissions account Reserves and related items: official reserve account
Current account
Net export/import of goods (trade balance) Net export/import of services Net income (investment income from direct and portfolio investment plus employee compensation) Net transfers (sums sent home by migrants and permanent workers aboard, gifts, grants and pensions)
Capital account
Capital transfers related to the purchase and sale of fixed assets such as real estate
Financial account
Net foreign direct investment Net portfolio investment Other financial items
D
Q
Quantity DEM
Schematic representation of the influence of various factors on the market exchange rate:
Economic happenings: - change in productivity - change in wages - change in the price of electricity
- prices - interest rates - income levels - political factors - psychological factors - expectations
Exchange rate