Balance of Payment

Topics: International trade, International economics, Balance of payments, Export / Pages: 7 (1727 words) / Published: Dec 31st, 2012
BALANCE OF PAYMENT (BOP)

Introduction:
Balance of payments (BOP) is a record of economic transitions between the residents of one country and the rest of the world during one year. The balance of payment like all balance sheets must balance. The items, which lead to, an inflow of foreign earnings are placed on the credit side of the balance sheet, whereas the items, which give, rise to an outflow of foreign currency are placed on the debit side.
Definition:
“Balance of payment is a systematic record of a nation’s total payments to foreign countries, including the price of imports, the outflow of capital and gold, and the total receipts from abroad, including the price of exports and the inflow of capital and gold.”
According to Pas Taylor:
“Balance of payment refers to the difference between the total payments out of a country during a given period of time. These payments are of visible and invisible items.”
Situation in Pakistan:
Pakistan, since independence, has been experiencing deficit (un-favourable) in its balance of payment except the following five years i. e., 1950-51, 1954-55, 1955-56, 1958-59, and 1959-60. In 1965-66, the balance of payment was highly deficit due to war against India.
Explanation:
Balance of payments of a country has three types of account:
a) Current Account
b) Capital Account
c) Official Reserve Account

a) Current Account
It includes export and import of all goods and services and transfer payments on receipts and payments sides respectively.
b) Capital Account
In capital account, on receipts side, short term and long-term capital inflow receipts of foreign direct investment and foreign debts are posted. Same items are written in payment side while making payment.
c) Reserve Accounts
It shows the foreign exchange position of a country. Official reserve account has the records of foreign official holding and increase reserves of gold and foreign currencies.

Surplus and Deficit in

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