Balance of Payments
The Balance of Payments (BOP) is one of the oldest and
most important statistical statements for any country. It is a
systematic record of all economic transactions between the
residents of one country and the residents of the rest of the world
in a year. Since we merely record all receipts and payments in
international transactions using double entry system, the balance
of payments always balance in an accounting sense.
The international transactions of the domestic country are
classified into the following groups:
• Trade Transactions:
They include exports and imports of all types of visible
and invisible goods and services in a year.
• Capital Transactions:
They include inflow and outflow of foreign capital in one
year. The inflow of foreign capital is due to foreign direct
investment, foreign portfolio investment and foreign
borrowings. The outflow of foreign capital is due to direct
capital investment abroad and foreign lending. The Balance
of Payment Account record in every country is maintained by
the central bank of the country. India’s Balance of Payment is
maintained by The Reserve Bank of India.
The Balance of Payment account is horizontally divided into
Current account, Capital account and Reserve account.
• Current account :
This account is the summary of all international trade
transactions of the domestic country in one year. It is divided
✔ Balance of Trade account:
On the Credit side of Balance of Trade account
Receipt of Foreign Exchange due to export of visible
goods is recorded and on the debit side of payment of
Foreign Exchange due to import of visible goods is
On the Debit side of the Balance of Trade account
Receipt of Foreign Exchange due to export of all types
of services is recorded and on the Debit side payment
of Foreign Exchange due to import of all types of
services is recorded.
✔ Capital Account Balance:
This account is the summary of F