Balance of payments

BALANCE OF PAYMENTS: MEANING AND
COMPONENTS

The balance of payments of a country is a systematic record of all economic transactions between residents of a country and residents of foreign countries

during a given period of time.

BALANCE OF TRADE AND BALANCE OF PAYMENTS

The balance of trade: Balance of trade is the difference between

the money value of exports and imports of material goods

(visible item)

The balance of payments: Balance of payments is a systematic

record of all economic transactions between residents of a

country and the residents of foreign countries during a given

period of time. It includes both visible and invisible items.

Hence the balance of payments represents a better picture of a

country‘s economic transactions with the rest of the world

then the balance of trade.

STRUCTURE OF BALANCE OF PAYMENT

ACCOUNTING

A balance of payments statement is a summary of a Nation‘s

total economic transaction undertaken on an international

account. There are two types of account.

1. Current Account: It records the following 03 items.

a) Visible items of trade: The balance of exports and imports

of goods is called the balance of visible trade.

b) Invisible trade: The balance of exports and imports of

services is called the balance of invisible trade E.g. Shipping

insurance etc.

c) Unilateral transfers: Unilateral transfers are receipts which

resident of a country receive (or) payments that the residents

of a country make without getting anything in return e.g.

gifts.

The net value of balances of visible trade and of invisible

trade and  of unilateral transfers the balance on current

account.

2. CAPITAL ACCOUNT: It records all international

transactions that involve a resident of the domestic country

changing his assets with a foreign resident or his liabilities to

a foreign resident.