PPT - Balance of Payments | Business Economics for CA Foundation PDF Download

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CPT Section C General Economics Chapter 6 Unit 7 
CS.Manish Dua 
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CPT Section C General Economics Chapter 6 Unit 7 
CS.Manish Dua 
It is a systematic record of all economic transactions between 
the residents of one country and of the residents of the rest of 
the world in a year. 
Since we merely record all receipts and payments in 
international transactions using double entry system the 
balance of payments always balances in an accounting sense. 
Page 3


CPT Section C General Economics Chapter 6 Unit 7 
CS.Manish Dua 
It is a systematic record of all economic transactions between 
the residents of one country and of the residents of the rest of 
the world in a year. 
Since we merely record all receipts and payments in 
international transactions using double entry system the 
balance of payments always balances in an accounting sense. 
In order to under stand this, let us take a hypothetical example of a 
country's balance of payments. The left side of the given table shows the 
receipts, i.e., all the ways in which a country can get foreign currency and 
the right shows the payments or how the foreign currency  is spent. 
Then why do we say that the balance of payments of a particular country is 
favorable or unfavorable?  
Page 4


CPT Section C General Economics Chapter 6 Unit 7 
CS.Manish Dua 
It is a systematic record of all economic transactions between 
the residents of one country and of the residents of the rest of 
the world in a year. 
Since we merely record all receipts and payments in 
international transactions using double entry system the 
balance of payments always balances in an accounting sense. 
In order to under stand this, let us take a hypothetical example of a 
country's balance of payments. The left side of the given table shows the 
receipts, i.e., all the ways in which a country can get foreign currency and 
the right shows the payments or how the foreign currency  is spent. 
Then why do we say that the balance of payments of a particular country is 
favorable or unfavorable?  
                                                         (Rs. Crore) 
     
Credit Debit 
1. Exports of goods 
2. Export of services 
3. Unrequited receipts 
(gifts, indemnities etc . from 
foreigners) 
4 . Capital receipts 
(borrowing from, capital 
repayment by or sale of 
assets to foreigners) 
9 . Net changes in external 
reserves 
550 
150 
100 
110 
90 
5. Imports of goods 
6. Imports of services 
7. Unrequited 
payments (gifts , 
indemnities etc . to 
foreigners ) 
8 . Capital payments 
(lending of capital, 
repayment to, or 
purchase of assets 
from foreigners) 
800 
50 
80 
70 
Total receipts 1000 Total payments 1000 
Page 5


CPT Section C General Economics Chapter 6 Unit 7 
CS.Manish Dua 
It is a systematic record of all economic transactions between 
the residents of one country and of the residents of the rest of 
the world in a year. 
Since we merely record all receipts and payments in 
international transactions using double entry system the 
balance of payments always balances in an accounting sense. 
In order to under stand this, let us take a hypothetical example of a 
country's balance of payments. The left side of the given table shows the 
receipts, i.e., all the ways in which a country can get foreign currency and 
the right shows the payments or how the foreign currency  is spent. 
Then why do we say that the balance of payments of a particular country is 
favorable or unfavorable?  
                                                         (Rs. Crore) 
     
Credit Debit 
1. Exports of goods 
2. Export of services 
3. Unrequited receipts 
(gifts, indemnities etc . from 
foreigners) 
4 . Capital receipts 
(borrowing from, capital 
repayment by or sale of 
assets to foreigners) 
9 . Net changes in external 
reserves 
550 
150 
100 
110 
90 
5. Imports of goods 
6. Imports of services 
7. Unrequited 
payments (gifts , 
indemnities etc . to 
foreigners ) 
8 . Capital payments 
(lending of capital, 
repayment to, or 
purchase of assets 
from foreigners) 
800 
50 
80 
70 
Total receipts 1000 Total payments 1000 
The balance of trade, the balance of current account the 
balance of capital account and the balance of payments:  
• Balance of Trade may be defined as the difference between the 
value of goods sold to foreigners by the residents and firms of the 
home country and the value of goods purchased by them from 
foreigners.  
• In our example, it is then difference between row 1 items and row 5 
items. If value of exports of goods is equal to the value of imports of 
goods, we say that thee is balance of trade equilibrium and if he 
latter exceeds he former, then we say that there is balance of trade 
deficit. But if the former exceeds the latter, i.e., if value of exports of 
goods is more than the value of imports of goods, we say there is 
surplus balance of trade.