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Balance of Payment |
👉 Balance of Payments (BOP)
It provides a systematic record of all economic transactions between the residents and the rest of the world, during a given period of time.
👉 Economic Transactions
They are categorised as :
(i) Visible Items
(ii) Invisible Items
(iii) Unilateral Transfers
(iv) Capital transfers
👉 Balance of Trade (BOT)
It is the difference between visible exports and visible imports.
👉 Current Account
It records all the transactions relating to export and import of goods, services and unilateral transfers during a given period of time.
Components :
1. Export and Import of goods
2. Export and Import of Services
3. Unilateral Transfers to and from abroad
4. Income receipts and payments to and from abroad
👉 Capital Account
It records all those transactions which cause a change in the assets or liabilities of the residents of a country or its government.
Components :
1. Borrowings and lending to and from abroad
2. Investments to and from abroad
3. Change in Foreign Exchange Reserves
👉 Autonomous Items
It refer to those internal economic transactions, which take place due to some economic motive such as profit maximization.
👉 Accommodating Items
It refer to the transactions that are undertaken to cover deficit or surplus in autonomous transactions.
👉 Situation in BOP
Balanced BOP = BOP is balanced when receipts of foreign exchange are equal to payments of foreign exchange.
Surplus BOP = BOP is in surplus when receipts of foreign exchange are more than to payments of foreign exchange.
Deficit BOP = BOP is in deficit when receipts of foreign exchange are less than payments of foreign exchange.
👉 Multiple Choice Questions (MCQs)
1. Balance of Payments is a _____ concept.
(a) Stock (b) Flow
(c) Both (a) and (b)
(d) Neither (a) nor (b)
Ans. (b) Flow
2. Inflow of foreign exchange is recorded on the _____ side.
(a) Credit (b) Debit
(c) Either (a) or (b)
(d) Neither (a) nor (b)
Ans. (a) Credit
3. When receipts of foreign exchange are more than payments of foreign exchange, BOP is :
(a) Balanced (b) Surplus
(c) Deficit (d) None of these
Ans. (b) Surplus
4. Which of the following is not a component of Balance of Payment ?
(a) Current account (b) Capital account
(c) Nominal account (d) None of these
Ans. (c) Nominal account
5. Export of machinery is recorded on the :
(a) Debit side of Current Account
(b) Credit side of Current Account
(c) Credit side of Capital Account
(d) Debit side of Capital Account
Ans. (b) Credit side of Current Account
6. Foreign exchange transactions dependent on other foreign exchange transactions are called :
(a) Current Account Transactions
(b) Capital Account Transactions
(c) Autonomous Transactions
(d) Accommodating Transactions
Ans. (d) Accommodating Transactions
7. Foreign exchange transactions which are independent of other transactions in the Balance of Payments Account are called :
(a) Current Transactions
(b) Capital Transactions
(c) Autonomous Transactions
(d) Accommodating Transactions
Ans. (c) Autonomous Transactions
8. Balance of Payments 'deficit' is the excess of :
(a) Current account of payments over current account receipts
(b) Capital account payments over capital account receipts
(c) Autonomous payments over autonomous receipts
(d) Accommodating payments over a accommodating receipts
Ans. (c) Autonomous payments over autonomous receipts
9. A company located in India receives a loan from a company located abroad. How is this transaction recorded in India's balance of payments account ?
(a) Credit side of current account
(b) Debit side of current account
(c) Credit side of capital account
(d) Debit side of capital account
Ans. (c) Credit side of capital account
10. An Indian company located in India invests in a company located abroad. This transaction is entered in India's balance of payments account on :
(a) Credit Side of Current Account
(b) Debit Side of Current Account
(c) Credit Side of Capital Account
(d) Debit Side of Capital Account
Ans. (d) Debit Side of Capital Account
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