19703445 balance of payments ppt

8/6/2019 19703445 Balance of Payments Ppt

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Balance of payments


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BOP

.. is the record of the economic and financialflows that take place over a specified timeperiod between residents and non-residentsof a given country.


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Divided into..

Current account

Capital account


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S td components of BOP

CURRENT ACCOUNT CAPITAL ACCOUNT

(+) Export fob +(-) Direct Investment

(-) Import fob +(-) Portfolio Investment

= Trade Balance +(-) Other Long term Capital

(+) Exports on Non-financial services +(-) Other Short term Capital

(-) Imports on Non-financial services +(-) Net errors and omissions

(+) Investment Income(Credit) +(-) Counterpart items

(-) Investment Income(Debit) +(-) Total change in reserves+(-) Private unrequited transfers

+(-) Official unrequited transfers

= Current Account balance = Capital Account balance


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Current A/cTransactions

Merchandise Export fobMerchandise Import fobExport of a non-financial serviceInvestment Income: Export of a financialserviceAn unrequited Transfer


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Capital A/c Transactions

A reserve transaction with a non-residentA reserve transaction with a resident


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Gold standard

Definition:A commitment by participating countries to fix

the prices of their domestic currencies interms of a specified amount of gold. Nationalmoney and other forms of money(bankdeposits & notes) were freely converted intogold at the fixed price.


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Advantages

During war time emergencies govt.emphasizes on purchasing gold standardwhich would be helpful in post-war deflations.The gold standard limits the power of govt. toinflate prices through excessive issuance of paper currency.


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Disadvantages

Gold standard means amount of moneywould be determined by supply of gold &hence monetary policy could no longer beused to stabilize the economy in times of economic recessions.

Monetary policy be determined by the rate of gold production. Fluctuation in the amount of gold that causes inflation if there is an

increase or deflation if there is a decrease.


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SDR

S pecial Drawing R ights are defined in termsof a basket of major currencies used ininternational trade & finance.

Why was the SDR created:-The SDR was created by the IMF in 1969 tosupport the Bretton Woods fixed exchangerate system.


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Purpose

SDR s are used as a unit of account by theIMF & several other internationalorganization.SDR s were originally created to replace gold& silver in large international transactions.


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International liquidity

International Liquidity meant the relativeamount of resources available to a nationsmonetary authorities that could be used tosettle a balance of payment deficit.


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Thanks you!

19703445 balance of payments ppt

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