CHAPTER 12 BALANCE OF PAYMENTS
Q1. what is balance of payment ?
Ans. Balance of payment is an accounting statement that provide a systematic record of all the economic transactions between
resident of a country and the rest of the world in a given period of time.
Q2. who are includeor not in resident ?
Ans. Residence include individuals, firms and government agencies Resident do not include diplomatic staff , foreign military
personal tourist , migratory workers and branches of foreign companies.
Q3. What is economic transactions?
Ans. Economic transactions refers to those transactions which involve the transfer of the title of ownership of goods services
money and assets under the include following items.
A. Visible items; These include all type of physical goods which are exported and imported these are called visible items.
B. Invisible items; Invisible items of trade refer to all types of services like shipping banking insurance etc
C. Unilateral transfer; It includes gift personal remittances and other one way transactions.
D. Capital transfer; Capital transfers related to Capital receipt (through borrowing or sale of Assets) and capital payment (through
capital repayment or purchase of assets).
Q4. Explain structure of balance of payment?
Ans. Balance of payment accounting uses the double entry system for recording transactions with the rest of the world.
Balance of payment account has two sides;
Credit side; all inflows or sources of foreign exchange are recorded on the credit side.
Debit side; all out flows or uses of foreign exchange are recorded on the debit side.
In economic sense balance of payment need not always be equal it means BOP can be three times.
Balanced balance of payment; Balance of payment is balanced when receipt of foreign exchange are equal to payment of foreign
exchange.
Surplus balance of payment; Balance of payment is in surplus when receipt of foreign exchange are more than payment of
foreign exchange.
Deficit balance of payment; Balance of payment is in deficit when receipt of foreign exchange are less than payment of foreign
exchange.
Q5. What is balance of trade?
Ans. Balance of trade refers to difference between the amount of export and import of visible items or goods.
Exports are entered as credit (positive) items in the bop account.
Imports are entered as debit (negative) items.
Balance of trade = export of goods - Import of goods
Balance of trade has two types.
1. Surplus balance of trade; If a country exports more goods than what it imports then the balance of trade is said to be in
surplus balance of trade is favourable for the country.
2. Deficit balance of trade; if the import of good exceed the export of goods than the country is said to have a deficit balance of
trade that is why balance of trade is unfavorable for the country.
Q6. Q8. Explain difference between balance of payment and balance of trade.
Ans. These are as follow.
Balance of payment Balance of trade
Balance of payment is an accounting statement that Balance of trade refers to difference between the amount
provide a systematic record of all the economic of export and import of visible items or goods.
transactions between resident of a country and the rest of
the world in a given period of time.
It records transactions related to goods as well as It records transactions related to goods only.
services.
It records both current account as well as capital account It does not record capital account transactions.
transactions.
BoP always balances, when movement of RBI reserves It is either positive (X > M) or negative (X < M). It
is reflected in it. balances only when X = M.
Q1. what is balance of payment ?
Ans. Balance of payment is an accounting statement that provide a systematic record of all the economic transactions between
resident of a country and the rest of the world in a given period of time.
Q2. who are includeor not in resident ?
Ans. Residence include individuals, firms and government agencies Resident do not include diplomatic staff , foreign military
personal tourist , migratory workers and branches of foreign companies.
Q3. What is economic transactions?
Ans. Economic transactions refers to those transactions which involve the transfer of the title of ownership of goods services
money and assets under the include following items.
A. Visible items; These include all type of physical goods which are exported and imported these are called visible items.
B. Invisible items; Invisible items of trade refer to all types of services like shipping banking insurance etc
C. Unilateral transfer; It includes gift personal remittances and other one way transactions.
D. Capital transfer; Capital transfers related to Capital receipt (through borrowing or sale of Assets) and capital payment (through
capital repayment or purchase of assets).
Q4. Explain structure of balance of payment?
Ans. Balance of payment accounting uses the double entry system for recording transactions with the rest of the world.
Balance of payment account has two sides;
Credit side; all inflows or sources of foreign exchange are recorded on the credit side.
Debit side; all out flows or uses of foreign exchange are recorded on the debit side.
In economic sense balance of payment need not always be equal it means BOP can be three times.
Balanced balance of payment; Balance of payment is balanced when receipt of foreign exchange are equal to payment of foreign
exchange.
Surplus balance of payment; Balance of payment is in surplus when receipt of foreign exchange are more than payment of
foreign exchange.
Deficit balance of payment; Balance of payment is in deficit when receipt of foreign exchange are less than payment of foreign
exchange.
Q5. What is balance of trade?
Ans. Balance of trade refers to difference between the amount of export and import of visible items or goods.
Exports are entered as credit (positive) items in the bop account.
Imports are entered as debit (negative) items.
Balance of trade = export of goods - Import of goods
Balance of trade has two types.
1. Surplus balance of trade; If a country exports more goods than what it imports then the balance of trade is said to be in
surplus balance of trade is favourable for the country.
2. Deficit balance of trade; if the import of good exceed the export of goods than the country is said to have a deficit balance of
trade that is why balance of trade is unfavorable for the country.
Q6. Q8. Explain difference between balance of payment and balance of trade.
Ans. These are as follow.
Balance of payment Balance of trade
Balance of payment is an accounting statement that Balance of trade refers to difference between the amount
provide a systematic record of all the economic of export and import of visible items or goods.
transactions between resident of a country and the rest of
the world in a given period of time.
It records transactions related to goods as well as It records transactions related to goods only.
services.
It records both current account as well as capital account It does not record capital account transactions.
transactions.
BoP always balances, when movement of RBI reserves It is either positive (X > M) or negative (X < M). It
is reflected in it. balances only when X = M.
