Balance of Payments in Nepal

Topics: International trade, Balance of trade, Current account Pages: 12 (3785 words) Published: September 24, 2012
Balance of Payment in Nepal|
International Business|
Submitted To: Mr. Yogesh Satyal|
Submitted By:|

A Balance of payments (BOP) sheet is an accounting record of all monetary transactions between a country and the rest of the world. These transactions include payments for the country's exports and imports of goods, services, and financial capital, as well as financial transfers. The BOP summarizes international transactions for a specific period, usually a year, and is prepared in a single currency, typically the domestic currency for the country concerned. Sources of funds for a nation, such as exports or the receipts of loans and investments, are recorded as positive or surplus items. Uses of funds, such as for imports or to invest in foreign countries, are recorded as a negative or deficit item. When all components of the BOP sheet are included it must balance - that is, it must sum to zero - there can be no overall surplus or deficit. For example, if a country is importing more than it exports, its trade balance will be in deficit, but the shortfall will have to be counter balanced in other ways - such as by funds earned from its foreign investments, by running down reserves or by receiving loans from other countries. While the overall BOP sheet will always balance when all types of payments are included, imbalances are possible on individual elements of the BOP, such as the current account. This can result in surplus countries accumulating hoards of wealth, while deficit nations become increasingly indebted. Historically there have been different approaches to the question of how to correct imbalances and debate on whether they are something governments should be concerned about. With record imbalances held up as one of the contributing factors to the financial crisis of 2007–2010, plans to address global imbalances are now high on the agenda of policy makers for 2010. There are two principle divisions on the BOP have been the current account and the capital account. Current Account

The current account shows the net amount a country is earning if it is in surplus, or spending if it is in deficit. It is the sum of the balance of trade (net earnings on exports - payments for imports), factor income (earnings on foreign investments - payments made to foreign investors) and cash transfers. Capital Account

The capital account records the net change in ownership of foreign assets. It includes the reserve account (the international operations of a nation’s central bank), along with loans and investments between the country and the rest of world (but not the future regular repayments / dividends that the loans and investments yield, those are earnings and will be recorded in the current account). So, BOP can be expressed as:

(+ or - Balancing item)
The balancing item is simply an amount that accounts for any statistical errors and make sure the current and capital accounts sum to zero. At high level, by the principles of double entry accounting, an entry in the current account gives rise to an entry in the capital account, and in aggregate the two accounts should balance. A balance isn't always reflected in reported figures, which might, for example, report a surplus for both accounts, but when this happens it always means something has been missed--most commonly, the operations of the country's central bank. An actual balance sheet will typically have numerous sub headings under the principle divisions. For example, entries under Current account might include: * Trade - buying and selling of goods and services

* Exports - a credit entry
* Imports - a debit entry
* Trade balance - the sum of Exports and Imports
* Factor income - repayments and dividends from loans and investments * Factor earnings - a credit entry
* Factor payments - a debit entry
* Factor income balance - the sum of earnings and...
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