), are recorded on the debit or negative side. Similarly, transactions, which lead to outflow of foreign exchange (like repayment of loans, purchase of assets or shares in foreign countries, etc. A deficit in the current account must be settled by a surplus on the capital account.1. Payments are either received or made to the other countries for use of these services.Current account contains the receipts and payments relating to all the transactions of visible items, invisible items and unilateral transfers.Unilateral transfers include gifts, donations, personal remittances and other ‘one-way’ transactions.
Surplus in current account arises when credit items are more than debit items. Income Receipts & Payments Income Receipts:It is a wider concept and it includes BOT.Current Account records all the actual transactions of goods and services which affect the income, output and employment of a country. Visible Trade Exports of goods:1. For example, the United States has had a trade deficit since 1976 because of its dependency on oil imports and consumer products.
Current Account records both visible and invisible items. It must be noted that ‘change in reserves’ is recorded in the BOP account and not ‘reserves’.Balance of trade includes only visible items.Capital account is concerned with financial transfers.
Scope: It is a narrow concept as it is only a part of current account. ), are recorded on the credit or positive side of capital account.
A positive trade balance indicates a trade surplus while a negative trade balance indicates a trade deficit. A country that imports more goods and services than it exports in terms of value has a trade deficit. Current Account records both visible and invisible items.B.
Balance of these visible exports and imports is known as balance of trade (or trade balance).2.
The balance of trade (BOT) is defined as the country’s exports minus its imports. Receipts of such loans and repayment of loans by foreigners are recorded on the positive (credit) side.A.
The formula for calculating the BOT can be simplified as the total value of imports minus the total value of exports.Forex Trading Strategy & Education Deficit in capital account arises when debit items are more than credit items. Deficit in current account arises when debit items are more than credit items. The balance of payments has three components—the current account, the financial account, and the capital account.Current accounts measure international trade, net income on investments, and direct payments. Debit items include imports, foreign aid, domestic spending abroad and domestic investments abroad. (ii) Absorb surplus of current account.The foreign exchange reserves are the financial assets of the government held in the central bank. It indicates net outflow of foreign exchange.Increases in foreign exchange reservesIt includes investment income in the form of interest, rent and profits.1. Investments by rest of the world in shares of Indian companies, real estate in India, etc. It is the balancing item, which reflects the inability to record all international transactions accurately.Net change in foreign exchange reservesA major part of transactions in foreign trade is in the form of export and import of goods (visible items). So, any withdrawal from the reserves is recorded on the positive (credit) side and any addition to these reserves is recorded on the negative (debit) side. Balance Of Trade - BOT: The balance of trade (BOT) is the difference between a country's imports and its exports for a given time period. Unilateral Transfers Transfer Receipts:A. Lending abroad and repayment of loans to abroad is recorded as negative or debit item.Capital account of BOP records all those transactions, between the residents of a country and the rest of the world, which cause a change in the assets or liabilities of the residents of the country or its government. The net value of credit and debit balances is the balance on current account.B. The net value of credit and debit balances is the balance on capital account.3. These refer to those receipts and payments, which take place without any service in return. The balance of payments is the record of all international trade and financial transactions made by a country's residents. Credit items include exports, foreign spending in the domestic economy and foreign investments in …
Investments from abroad Investments from abroad:(i) Finance deficit in current account; orPayments for these services are recorded on the negative side and receipts on the positive side.It includes a large variety of non- factor services (known as invisible items) sold and purchased by the residents of a country, to and from the rest of the world. There are countries where it is almost certain that a trade deficit will occur.
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