The Theory and Implementations of The Balance of Payments (BOP) :: Economics

The Theory and Implementations of The Balance of Payments (BOP)To develop countrys economic strength under the tendency ofglobalization, governments always seek to bring home the bacon two macroeconomicobjectives, i.e. stable growth of internal economy and matchdevelopment of external economic activities. The former can be agnize by effectively adjusting Economic Growth, Unemployment andInflation. However, how to realize the latter? An externalmacroeconomic variable is needed. In practice, the Balance of Paymentsfulfills this responsibility. (A). Balance of Payments (BOP used in future(a) text), in principle,is a record of the countrys transactions with the lodge in of the world.It shows the countrys payment s to or deposits in some separate countries(debits) and its receipts or deposits from other countries (credits)1.The BOP figure2 also shows the balance amidst these debits andcredits under various headings, which are categorized into the Current accountancy, the jacket c rown Account and the Financial Account, which composethe main elements of balance of payments.The Current Account largely measures flow of real resources includingexports and imports of goods and function, income receivable andpayable abroad, and current transfers from and to abroad. It isnormally divided into three subdivisions (Figure 1).Trade in goods account (often as the merchandise balance)The total value of exports of goods, subtracting the total value ofimports of goods.Trade in services accountImports and exports of services, such as banking and insurance,transport services, law, accountancy, management consultancy andtourism.Investment incomesInterest, advance and dividends flowing into and out of the country.Transfers of moneyTwo sectors government transfers and transfers made by other sectors.Government transfers include contributions to internationalorganisations (e.g. UK to EU budget) and foreign aid. The othersectors section many highlights the transfer of assets b y individualsto foreign bank accounts.The majuscule Account measures external transactions in capitaltransfers, and in acquisition or disposal of non-produced,non-financial assets, which include land and subsoil assets, patentsand copyrights etc. seat of government transfers are transfers of ownership of afixed asset or the mercy of a liability.The Financial Account records transactions in financial assets andliabilities among residents and non-residents. It shows how aneconomys external transactions are financed. Transactions in thefinancial account are classified into direct investment funds, portfolioinvestment, other investment, and reserve assets3 (Figure 2).Direct investmentMoney flows across national boundaries for the purpose of investingand it is thus each a credit or a debit item.Portfolio investmentChanges in the holding of paper assets, such as company shares andbonds.Other investmentIt comprises loans, currency, deposits, and short and long-term tradecredits, fin ancial derivatives and other accounts receivable andpayable. relief assetsThis refers to the reserves of gold, special drawing rights (SDRs) and