Balance of Payment
The exchange of goods and services is called trade. In the presence of international trade links, economies have been categorized as closed economy and open economy. Balance of Payments (BOP) is a systematic record of all economic transactions between the residents of a country (including government) and the rest of the world carried out during an accounting year. The structure of balance of payments is comprised of
There are three categories of balance of payments. They are:
Balance of Trade (BOT)
Balance of Current Account
Balance of Capital Account
The components of balance of payments are: current account (visible goods, invisible goods and unilateral transfers) and capital account (private capital, banking capital, official capital and gold and foreign capital). The overall balance in balance of payments can be obtained as sum of current account balance and capital account balance. The overall balance in balance of payments is understood in two ways i.e. accounting sense and operational sense. Balance of payments is said to be in disequilibrium when balance of payments deficit (or even surplus) are of large magnitude and increases over years. The causes of adverse balance of payments are:
Fall in foreign demand
Inflationary pressure in the economy
Developmental expenditures, etc.
The measures to correct disequilibrium in the balance of payments are depreciation, devaluation, import control, etc.