Download file to see previous pages...
The BOP is the country’s way of monitoring the international trading of its product and service offerings, and financial assets (Melvin and Norrbin, 2013, p.59; Cool and Goddard, 2006, p.92, Stovel, 1959, p.21). When a country receives money, it is automatically credited to its account, and it is debited from its account once it has paid or given money. BOP is therefore the inflows and outflows of cash. Inflows are credit and outflows are debit. The work at hand establishes the discussion of the three essential components of the BOP and the issues pertaining to its equilibrium.
The current account consists of merchandise exports and imports and invisible exports and imports (OECD, 2000, p.151; Rana and Alburo, 1987, p.50). It is technically the flow of product and service offerings into a country. This also includes revenue on investments done publicly or privately. Generally, the current account consists of three essential components too. The first component is the net export. This is the biggest part of the current account, because it is around 80 to 90 percent. The next component is the net foreign income. This may be the income payment on stocks and bonds. Thus, at some point the net foreign income may be the interest payment on the bond or the dividend payment. Aside from the two components mentioned so far, the other part of current account is the foreign aid (Gaspar et al., 2013, p.93; Eicher et al., 2009, p.352; Clarida, 2007, p.38). Foreign aids are amount of money that the other economies may have directly transferred to a certain economy for the purpose of providing aid. This can also take place when a worker sends money home.
Financial account is the next relevant component of BOP. It is the International transfer of capital, and attainment and clearance of assets that are non-financial and non-produced (OECD, 2005, p.45; International Monetary Fund, 2000, p.50). The financial account consists of real assets and financial assets. The real asset
...Download file to see next pagesRead More
In order to measure export and import activity of each country, economists apply Balance of Payments (BOP). The goal of this paper is to give a brief understanding of what is the balance of payments and balance of payments deficit and to analyze what are the consequences of reducing a balance of payments deficit.
According to the BPM transactions, for the most part between residents and nonresidents, “consist of those involving goods, services, and income, those involving financial claims on, and liabilities to, the rest of the world; and those (such as gifts) classified as transfers which involve offsetting entries to balance – in an accounting sense – one-sided transaction” (International Monetary Fund, 1).
A country’s balance of payments consists of various accounts like the current account which is arrived at by summing up the total values of trade in goods and services, the incomes from investments and the transfers (Nikolas 2010, p. 57). The capital or financial accounts which is arrived at by summing up the values of capital or financial flows, portfolio investments and the net investments.
Another essential element that can be an indicator of a country's economic health is their exchange rates. Exchange rates compare the currency of one country to that of another. There are many ways in which the exchange rates can affect an economy. Understanding how exchange rates and balance of payments are linked is important to understanding how a country's economy interacts with that of other countries around the world.
The balance sheet and the profit and loss account are two of the important financial accounts. They are important for the management especially in decision making. All decisions regarding investments are based on the financial accounts. They indicate an organization's potential in regard to investment.
Balance of payments comprises of the balances in the current and capital accounts. The relationship between exchange rate and balance of payments structure is that they correspond with one another. When an exchange rate of a country’s currency reduces against currencies of
This has therefore seen the economy of Qatar register a relative deficit in their balance of payment within the period of 1997-2007.
CIA World Factbook (2013) report shows that between the years 1997 and 2007, the income balance
goods, consisting of tangible and visible products; services, which are made up of commodities that are intangible that are produced, transferred and consumed; income; financial claims on, and liabilities to, different parts of t he world, not limited to changes in the reserve
mmodating items for instance, use of special drawing rights, borrowing from the IMF and drawing from the reserves held by the Central Bank of foreign currencies are not included (McConnell & Brue, 2013). Excluding these accommodating items yields neither surplus nor deficit in
1 Pages(250 words)Essay
GOT A TRICKY QUESTION? RECEIVE AN ANSWER FROM STUDENTS LIKE YOU!
Let us find you another Essay on topic Discuss in detail the components of the Balance of payments account for FREE!