Balance of Payments

Table of Contents:

• Introduction

• Debit

• Credit

• BOP must be in equilibrium

• Balance of payments in Pakistan

• Causes of adverse balance of payments

• Measures to correct BOP

• Conclusion

Introduction:

Balance of payments refers to sum of both the balance of visible and invisible items. The balance of Payment is a comprehensive annualrecord of economic relation of a country with the rest of the world during a given period of time.

A balance of payments (BOP) sheet is an accounting record of all monetary transactions between a country and the rest of the world. These transactions include payments for the country's exports and imports of goods, services, and financial capital, as well as financial transfers. The BOP summarizes international transactions for a specific period, usually a year, and is prepared in a single currency, typically the domestic currency for the country concerned. Sources of funds for a nation, such as exports or the receipts of loans and investments, are recorded as positive or surplus items. Uses of funds, such as for imports or to invest in foreign countries, are recorded as a negative or deficit item.
Debit:
The spending of foreign currency is debit and negative item.
Credit:
If a transaction earns foreign exchange for nation it is a plus item and credit.
Favourable BOP:
If the value of exports is greater than the value of imports, then the balance of trade is said to be favourable.
Unfavourable BOP:
If value of imports is greater than value of exports, then the balance of trade is said to be unfavourable.
BOP must be in equilibrium:
BOP sheet are included it must balance – that is, it must sum to zero – there can be no overall surplus or deficit. For example, if a country is importing more than it exports, its trade balance will be in deficit, but the shortfall will have to be counter balanced in other ways – such as by funds earned from its foreign investments, by running down