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    Welcome: Welcome To Welcome To

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    Krish Patil
    This document provides an overview of international trade, foreign exchange, and balance of payments concepts. It discusses how international trade requires currency conversion between exporting and importing countries. Foreign exchange markets facilitate this conversion. The balance of payments is a systematic record of all economic transactions between a country and the rest of the world over a period of time, usually one year. It has three components - the current account, capital account, and official reserve account. India's balance of payments data from 2009-2010 and 2010-2011 is presented to show trends in trade balance, capital flows and overall balance.

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    Welcome: Welcome To Welcome To

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    Krish Patil
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    This document provides an overview of international trade, foreign exchange, and balance of payments concepts. It discusses how international trade requires currency conversion between exporting and importing countries. Foreign exchange markets facilitate this conversion. The balance of payments is a systematic record of all economic transactions between a country and the rest of the world over a period of time, usually one year. It has three components - the current account, capital account, and official reserve account. India's balance of payments data from 2009-2010 and 2010-2011 is presented to show trends in trade balance, capital flows and overall balance.

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    This document provides an overview of international trade, foreign exchange, and balance of payments concepts. It discusses how international trade requires currency conversion between exporting and importing countries. Foreign exchange markets facilitate this conversion. The balance of payments is a systematic record of all economic transactions between a country and the rest of the world over a period of time, usually one year. It has three components - the current account, capital account, and official reserve account. India's balance of payments data from 2009-2010 and 2010-2011 is presented to show trends in trade balance, capital flows and overall balance.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    39 views34 pages

    Welcome: Welcome To Welcome To

    Uploaded by

    Krish Patil
    This document provides an overview of international trade, foreign exchange, and balance of payments concepts. It discusses how international trade requires currency conversion between exporting and importing countries. Foreign exchange markets facilitate this conversion. The balance of payments is a systematic record of all economic transactions between a country and the rest of the world over a period of time, usually one year. It has three components - the current account, capital account, and official reserve account. India's balance of payments data from 2009-2010 and 2010-2011 is presented to show trends in trade balance, capital flows and overall balance.

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    of 34

    Welcome

    Welcome to Welcome to

    Welcome to Balance of Payments Welcome to

    International Trade

    International trade refers to trade between the residents of two different countries

    International Trade
    The exporter requires payment in the currency of the exporters country whereas the importer can pay only in the currency of the importers country A need, therefore, arises for conversion of the currency of the importer's country into that of the exporters country

    Foreign Exchange
    Foreign exchange is the mechanism by which the currency of one country gets converted into the currency of another country The conversion of currencies is done by banks who deal in foreign exchange

    Foreign Exchange
    The rate at which one currency is converted into another currency is the rate of exchange between the currencies concerned The banks operating at a financial centre and dealing in foreign exchange constitute the foreign exchange market

    Foreign Exchange as Stock


    In another sense, the term foreign exchange is used to refer to the very balance held abroad FEMA, 1999: foreign exchange includes foreign currency, balances kept abroad, instruments payable in foreign currency and instruments drawn abroad but payable in Indian currency

    Balance of Payments

    Balance of payments ( BOP ) is the systematic summary of the economic transactions of the residents of a country with the rest of the world during a specified time period, normally a year

    Features of BoP Statement


    Economic Transactions: An economic transaction arises when values are exchanged or moved between nations
    Theses may arise from: a. movement of goods in the form of exports and imports b. rendering of services abroad and using foreign services

    Features of BoP Statement


    Economic Transactions: c. Gifts/grants from one country to another d. Investments made abroad or received from abroad e. Income on investments received from abroad or remitted abroad f. Increase/ decrease in the international reserves of the country

    Features of BoP Statement


    Transactions between residents with Non-residents. A Flow Statement.

    Periodicity.

    BoP Statement
    In compilation of balance of payments, double entry principle of accounting is used
    Currency Inflows Credits
    ( earn foreign exchange)

    Currency Outflows Debits


    ( expend foreign exchange)

    BoP Statement
    BOP statement is presented with three major components: i) Current Account ii) Capital Account iii) Official Reserve Account

    BALANCE OF PAYMENTS

    Current Account

    Capital Account

    Official Reserve Account


    Decrease or increase in foreign exchange reserves

    Foreign Direct Investment (FDI)

    Portfolio Investment

    Private Short-term Capital Flows

    Goods account: Exports & Imports


    Services account: Travel, transportation, Insurance etc. Unilateral transfers: Gifts, donations & subsidies

    Investment Income : Interest, Dividends etc.

    BOP Accounting
    1. Export of goods USD 200 Mn. realisation deposited in bank abroad 2. Import of goods USD 150 Mn. payment made from bank account abroad 3. Amount spent by foreign tourists in the country USD 40 Mn. 4. Received goods as gift from another country USD 60 Mn. 5. Export of commodities for USD 80 Mn. On a government deal payment in gold by the importing countrys government

    Balance of Payments
    (USD Million)

    Credit (+) A. CURRENT ACCOUNT 1. Merchandise Trade

    Debit (-)

    Balance

    280

    210

    +170 +70

    2. Trade in Services
    3. Unilateral Transfers B. CAPITAL ACCOUNT

    40 60
    150 240 80

    +40 +60
    -90 -80

    Bank balances abroad


    C. OFFICIAL RESERVE ACCOUNT

    Importance of BOP
    a. Judge economic and financial status of a country in the short-term b. Deficit signifies a tendency to take stiff measures for diminishing imports, exchange control and restrictions on repatriation of dividends/ interest

    Importance of BOP
    c. Consistent BOP deficit has an unfavourable effect on exchange rate depreciation of the currency d. Central bank intervenes through its regulatory stock to control volatility of exchange rate

    Link between the National Economy & International Activities


    National Income = Consumption + Savings National Spending = Consumption + Investment So, National Income National Spending = Savings Investment
    If a nations income exceeds its spending, savings will exceed domestic investment

    Link between the National Economy & International Activities


    A nation that produces more than it spends will save more than it invests domestically and will have a net capital outflow This capital flow will appear as a combination of capital account deficit and an increase in official reserves

    Indias Overall Balance of Payments (` crore) Item Credit 7 A. CURRENT ACCOUNT I. MERCHANDISE II. INVISIBLES (a+b+c) Total Current Account (I+II) 8,62,333 7,74,512 16,36,845 14,23,079 3,94,392 18,17,471 -5,60,746 3,80,120 -1,80,626 11,39,517 8,99,484 20,39,002 17,34,545 5,06,990 22,41,534 -5,95,028 3,92,494 -2,02,532 2009-10 PR Debit 8 Net 9 Credit 10 2010-11 P Debit 11 Net 12

    B.

    CAPITAL ACCOUNT 1. Foreign Investment (a+b) 2. Loans (a+b+c) 3. Banking Capital (a+b) 4. Rupee Debt Service 5. Other Capital Total Capital Account (1to5) 9,43,447 3,49,720 2,92,105 54,300 16,39,572 6,99,806 2,88,047 2,82,261 452 1,16,874 13,87,440 7,269 2,43,641 61,673 9,844 -452 -62,574 2,52,132 -7,269 13,04,426 4,86,050 4,19,277 45,781 22,55,534 11,32,272 3,59,057 3,97,252 313 93,507 19,82,401 11,152 1,72,154 1,26,993 22,025 -313 -47,726 2,73,133 -11,152

    C.

    Errors & Omissions

    D.

    Overall Balance (A+B+C))

    32,76,417

    32,12,180

    64,237

    42,94,536

    42,35,087

    59,449

    Source: Reserve Bank of India

    Balance of Trade
    The balance of trade is the difference between the monetary value of exports and imports of output in an economy over a certain period
    It is the relationship between a nation's imports and exports A positive balance is known as a trade surplus and a negative balance is referred to as a trade deficit or, informally, a trade gap

    Indias International Trade

    Indias International Trade

    Indias International Trade

    GOOD LUCK TO YOU

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