Balance of Payment
Most of exports and imports involve finance i.e. receipts and payments in money. An account of all receipts and payments is termed as Balance of Payments (BOP).
According to Kindle berger, "The balance of payments of a country is a systematic record of all economic transactions between the residents of the reporting country and residents of foreign countries during a given yeriod of time".
The balance of payment record is maintained in a standard double-entry book-keeping method. International transactions enter in to the record as credit or debit. The payments received from foreign countries enter as credit and payments made to other countries as debit.
Balance of Payment is a record pertaining to a period of time; usually it is all annual statement. All the transactions entering the balance of payments can be grouped under three broad accounts; 1. Current Account, 2. Capital Account, and 3. Official International Reserve Account.
However, it can be vertically divided into many categories as per the requirement.
Structure of Balance of Payment (BOP)
1. Trade Account Balance
It is the difference between exports and imports of goods, usually referred as visible or tangible items. Till recently goods dominated international trade. Trade account balance tells as whether a country enjoys a surplus or deficit on that account. An industrial country with its industrial products comprising consumer and capital goods always had an advantageous position. Developing countries with its export of primary goods had most of the time suffered from a deficit in their balance of payments. Most of the OPEC countries are in better position on trade account balance.
The Balance of Trade is also referred as the 'Balance of Visible Trade' or 'Balance of Merchandise Trade'.
2. Current Account Balance
It is difference between the receipts and payments on account of current account which includes trade balance. The current account