--%>

Purpose of Balance of Payment

Meaning: - as mentioned above, the balance of payments is a periodic accounting of international economic transactions. Each country having regular economic transactions with other countries prepares periodically the final accounts of their foreign receipts and payments and of their financial inflows and outflow arising out of its international transactions. This account is called balance of payments (BOP). Thus, the BOP is statement of economic transactions of a country with the rest of the would over a period of time. Specifically, the BOP can be defined as a statement of all economic transactions between the residents of a nation and the rest of the would during a period of time usually one year. In practices, however, BOP accounts are prepared on quarterly basis also.  A brief explanation of some of the terms used in the definition of BOP is in order. 

The term systematic accounting does not refer to any particular system. However, the system which is generally adopted is double entry book-keeping system. In this accounting system both sides of a transaction debit and credit are recorded. 

Economic transactions: - include all the transactions that involve the transfer of title or ownership of goods. Services, money and assets between the residents of a country and the rest of the world. While some transactions involve physical transfer of goods. Money and assets along the transfer of the title, in some transactions, physical transfer is not necessary. For example, even if transfer of the title, in some transaction physical transfer is not necessary. For example, even if profits of a subsidiary of a foreign company is not transferred abroad of reinvested within the country it in located, it is deemed to be paid to the parent company abroad. What is important is the transfer of the title, not the physical transfer of what is transacted. 

The term residents mean the nationals of the reporting country. Diplomatic staff, foreign military personnel, to jurist's migratory workers and branches of the foreign companies is not treated as the residents even though they works and operate in the reporting country. 

Purpose: - the purpose of BOP accounting is to take the stock of country's foreign receipts and payment obligations and of assets and liabilities arising out of international economic transactions with a view to taking stock of gains and losses of foreign transaction and to correcting unhealthy trends some other important use of the BOP accounts are following 

First: - BOP accounting serves a very useful purpose in so far as it yields necessary information on the strength and weakness of the country in international economic status.

Second: - by analysing the BOP accounts of past years, one can find the overall gains and losses from the international economic transactions. It can be ascertained whether composition and direction of international trade and capital movements have improved of caused deterioration in the economic condition of the country. 

Third: - BOP statements give warning signals for future policy formulations. For even if the BOP position in recent past has not been a matter of concern, there may be unhealthy developments which might create problem in future, for example, building foreign exchange reserves on borrowed funds increase international indebtedness which might lead to financial bankruptcy.

   Related Questions in Macroeconomics

  • Q : Diminishing prices raising total revenue

    Diminishing prices will raise total revenue from DVD game sales at each and every price: (1) On this demand curve. (2) Beneath $25. (3) Above $25. (4) Beneath $30.

    Q : Article on Agriculture and economic

    Read the article on blackboard in the assignments area, John McCallum "Agriculture and economic development in Ontario and Quebec until 1870", Gordon Laxer, ed. Perspectives on Canadian Economic Development: Class, Staples, Gender and Elites (Toronto: Oxford Universit

  • Q : Crisis in Japan & US Question: What can

    Question: What can we learn from the Japanese experience? Is the US headed for a 'lost decade? Answer: There was a similari

  • Q : Goals of Microeconomic Hello guys I

    Hello guys I need your advice. Please advise your view for following economics problems. Microeconomic goals consist of: (w) full employment. (x) efficient allotments of resources. (y) price level stability. (z) ec

  • Q : Balance the budget general approaches

    Quetion: Explain why there are long-term Federal government budget problems.   Explain why the base-line forecast of the CBO is misleading.   Include in your answer why solutions to the problem

  • Q : Explain Product Market Equilibrium. To

    To begin with, let us recall our three-sector product-market equilibrium model given as C + I + G = C + S + TTo this three-sector model, we now add the foreign trade-the exports (X) and imports

  • Q : Tax shifting forward totally A tax is

    A tax is shifted forward when the tax burden causes the: (w) consumers to pay higher prices. (x) lower purchasing power for the party bearing the legal incidence. (y) workers to experience lower take home wages. (z) decreased dividends to corporate st

  • Q : Threats of SWOT analysis Threats of

    Threats of SWOT analysis: • Possible threat from other banks and other financial institutions • There is always a possible threat of market fluctuations. By this we me

  • Q : What are the strength and weakness What

    What are the strength and weakness of using per capital national income? give explained answer for query

  • Q : Explain Tax rate increase. A change in

    A change in tax rate changes the IS equation, LM equation remaining the same. Let same, let us suppose that the government raises the tax rate from 20 percent to 25 percent<