Balance of Payments

A record of international transactions

between residents of one country and the rest
of the world
International transactions include exchanges
of goods, services or assets
Residents means businesses, individuals and
government agencies, including citizens
temporarily living abroad but excluding local
subsidiaries of foreign corporations
 Balance of Payments
Composed of a number of subaccounts that
are watched closely by groups as diverse as
investment bankers, farmers, politicians and
corporate executives.
Groups track and analyze the major
subaccounts continually, such as:
Current accounts
Capital accounts
Financial accounts
 Double-entry Accounting in the BOP
All transactions are either debit or credit
transactions
Credit transactions result in receipt of
payment from foreigners
Merchandise exports (valued f.o.b.)
Transportation and travel receipts
Income received from investments abroad
Gifts received from foreign residents
Aid received from foreign governments
 Double-entry Accounting
Debit transactions involve to payments to
foreigners
Merchandise imports
Transportation and travel expenditures
Income paid on investments of foreigners
Gifts to foreign residents
Aid given by home government
Overseas investments by home country residents
Each credit transaction has a balancing debit
transaction, and vice versa, so the overall balance
of payments is always in balance.
Fundamentals of Balance of Payments
Accounting
INTERNATIONAL ECONOMIC TRANSACTIONS
Three main elements:
1. Identifying what is and is not an international
economic activity.
2. Understanding how the flow of goods, services,
and money creates debits and credits to the
overall BOP.
3. Understanding the bookkeeping procedures for
the BOP accounting.
 BOP as a Flow Statement
By recording all international transactions
over a time such as a year, the continuing
flows of purchases and payments between a
country and all other countries.
 Types of Business Transactions that
dominates BOPs:
Exchange of real assets the exchange of
goods (eg. automobiles, computers, watches,
etc.) and services (eg. Banking, consulting and
travel services) for other goods and services or
money.
Exchange of financial assets the exchange of
financial claims (eg. Stocks, bonds, loans and
purchases or sales of companies) for other
financial claims or money.