What are the components of BOP?


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BOP is a set of accounts (balance sheet) which shows all the economic transactions which take place between the residents of one country and the residents of all other countries during a given time period, usually one year.

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Components of BOP

1.  Current Account

-This account includes both visible and invisible items.

-The visible items (imports and exports) consist of physical merchandise of all kinds.

-The invisible imports and exports are mainly services and include net income from services rendered by residents to non-residents (tourism, shipping, insurance and banking)  balance of gifts and transfer of migrant funds, net grants by the government to other countries, interest, profits & dividends.

-An excess of imports over exports will cause current account deficit and the reverse will lead to current account surplus.

 

2.  Capital Account

This account reduces both long – term and short – term capital movements between the home country and all other countries.  The long – term capital movements include direct investments, portfolio investments (buying securities of a foreign company) and inter-governmental loans.  The short – term capital movements include all forms of short – term private lending and short term investments.

 

3.  Balancing Item

This item is included because of errors and omissions in the above accounts.

 

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We, at BMS.co.in, believe in sharing knowledge and giving quality information to our BMS students. We are here to provide and update you with every details required by you BMSites! If you want to join us, please mail to contact@bms.co.in.

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