Balance of payment and adjustment to a third world country

Topics: International economics, Balance of payments, Investment Pages: 4 (1632 words) Published: October 23, 2014

CHAPTER 8:
BALANCE OF PAYMENT AND THE ADJUSTMENT IN THE THIRD WORLD
Balance of Payment (BoP) is a systematic record of all economic transactions between the resident of one country and residents of foreign countries during a given period of time. Importance of Balance of Payment:

It helps State of International economic relationship of country A guide to its monetary, fiscal, exchange & other policies Inform government about the international economic position of the country, to assist in reaching decisions on the monetary and fiscal policies Structure of BoP:

BoP is a complete record of Total Receipts and Total Payment of a country in relation to other countries over a given time period. Total Receipts are called CREDIT and Total Payments are termed as DEBIT Credit side comprises of all those values received from foreign countries Debit side comprises of all the payments made to other countries. It is maintained in a double entry book keeping system.

Components of BoP:
Current account
Capital account
Financial account
Current Account
The current account covers trade in goods, services, primary income, and secondary income. Examples:
Trade in goods—exports and imports—is the bulk of the current account. Electronics are the country’s major exports. Consequently, raw material inputs to electronics exports make up a sizable portion of imports. Trade in services is another component of the current account. Business Process Outsourcing (BPO)-related transactions, particularly other business services and computer services, dominate the country’s exports of services while travel ranks as the top service imports, largely on account of travel payments of outbound Filipino tourists during their visits abroad. Other service transactions with the rest of the world include transport, telecommunication services, construction, insurance and pension, financial, charges for the use of intellectual property, other business, personal, cultural and recreational,...
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