Select the correct option from the followings. The Balance of payment (BoP) :
BoP: Understanding the Accounting Balance
The Balance of Payment (BoP) is a systematic record of all economic transactions between a country and the rest of the world over a specific period. A key characteristic is its accounting nature.
Analyzing BoP Options
- Option 1 Incorrect: The BoP includes more than just the export and import of goods and services. It also covers international trade in services, income, current transfers, and capital and financial account transactions.
- Option 2 Correct: The BoP adheres to the principle of double-entry bookkeeping. Every transaction has two sides: a credit entry (representing receipts from abroad) and a debit entry (representing payments to abroad). Theoretically, the sum of all credits must equal the sum of all debits, ensuring the BoP is always balanced in an accounting sense. This means Total Credits = Total Debits.
- Option 3 Incorrect: Unilateral transfers, such as remittances, gifts, and grants, are a significant part of the BoP, specifically within the current account.
- Option 4 Incorrect: The BoP comprises multiple accounts, including the current account (for goods, services, income, and transfers) and the capital and financial accounts (for capital transfers and financial assets/liabilities). It does not solely show the financial account.
Therefore, the statement that the Balance of Payment is always balanced because every credit entry has a corresponding debit entry accurately describes its accounting principle.
Important Questions from Balance of payments (BOP)
Indicate the correct code of the following statements being correct or incorrect. The statements relate to the type of transactions recorded in the current/capital accounts of the Balance of Payments.
Statement (I): The capital account consists of long-term capital transactions only.
Statement (II): The current account includes all transactions which give rise to or use up national income.
The items on the capital account of Balance of Payments are:
Improvement in the balance of payments deficit may be effected through:
A. Import controls
B. Export promotion
C. Foreign exchange control
D. Devaluation
Choose the correct answer from the options given below:
Which one of the following is NOT a part of the current account of a country's balance of payments?
Match the items of List I with the items of List II and choose the correct answer from the code given below.
List I
List II
(a)
Balance of trade
(i)
Imports and exports of goods and services
and unilateral transfer of goods and services(b)
Current account
(ii)
Transactions leading to changes in the
financial assets and liabilities of a country(c)
Balance of payments
(iii)
All economic transactions between a country's
residents and residents of other countries(d)
Capital account
(iv)
Value of exports and imports of country
