BOP

Balance of payments

Definition: An accounting statement provides a systematic record of all economic transactions, between its residents and rest of the world, during a given period of time.

• Economic transactions are the transactions, which cause transfer of title or ownership. In the context of foreign transactions, value is transferred by the residents of one country to the residents of other country. Example: when exports of goods or services are made by country A to country B, value (= export receipts) is transferred by country B to country A. Between the countries, value is transferred in terms of foreign exchange (i.e. payments are received and made in terms of foreign exchange).
• Residents here include individual, firms and government agencies. However, residents do not include diplomatic staff, foreign military personnel, tourist, migratory workers and branches of foreign companies

Economic transactions are broadly categorised as:

1. Visible items: This includes all types of physical goods that are exported and imported.
2. Invisible items: It refers to all types of services like shipping, banking, insurance etc, which are given and received. These cannot be seen, felt, touched or measured.
3. Unilateral transfers: These include gifts, personal remittances, and other one-way transactions. They are also known as unrequited transfers.
4. Capital transfers: These relate to capital receipts and capital payments.