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<p><strong>Balance of Payments</strong> is an account that summarizes a country’s total payments and total receipts from international economic transactions within a specific period, usually one year. The main reason for compiling the balance of payments is to inform the government authorities in a particular country of the international position of the country. It also helps policy makers in taking decisions on monetary and fiscal policies on one hand, trade and payment policies on the other.</p>
<h2><strong>Balance of Payments Deficit and Surplus</strong></h2>
<h3><strong>Balance of Payments Deficit:</strong></h3>
<p>It refers to the net deficit on balance of payment accounts. Some possible causes of balance of payments deficit are:</p>
<ol style="list-style-type: lower-alpha;">
<li>Declining export earnings either due to falling export volume or export price.</li>
<li>Rising import bills owing to rising import prices.</li>
<li>Rising domestic prices may discourage exports because exportable goods will become non-price competitive in the world market. Also, rising domestic prices may encourage imports because imports will become relatively cheap.</li>
<li>Overvalued currency: When a country’s currency is overvalued, it encourages flight of capital and reduces the inflow of autonomous capital.</li>
</ol>
<p>A deficit account may be financed by:</p>
<ol style="list-style-type: lower-alpha;">
<li>Using a country’s gold reserves and foreign currency reserves.</li>
<li>Increasing the assets of foreigners in the country.</li>
<li>Selling investment overseas.</li>
<li>Borrowing from foreign governments, banks or the IMF, etc.</li>
</ol>
<h3><strong>Balance of Payments Surplus:</strong></h3>
<p>It occurs when the total receipts on the balance of payments accounts exceed total payments on the accounts. A surplus on the balance of payments accounts may be used in the following ways:</p>
<ol style="list-style-type: lower-alpha;">
<li>To augment a country’s foreign reserves.</li>
<li>As loans to other countries.</li>
<li>To invest in businesses in other countries.</li>
<li>Buying assets abroad.</li>
</ol>

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Balance of Payments (BOP)

Economics studies social behavior guiding the allocation of scarce resources to meet the unlimited needs and desires of the individual members of a given society, and for the production of goods and services, growth of production and welfare over time, and a great variety of other complex issues of vital concern to society. 

Economics

Explore the principles and concepts underlying global commerce, including theories of comparative and absolute advantage, balance of trade, balance of payments, exchange rates, and more.


Balance of Payments (BOP)

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