Page 1 - Lesson note -BOP(Module-60)

Class XII

Subject- Economics

CHAPTER-12

TOPIC- Balance of Payment(MODULE-60)

Short Note:

Balance of Payment: Refers to an accounting statement which consists of systematic record
of all economic transaction between residents of a country and the rest of the world, in a
given period of time.

Components of BOP:

A) Current Account
i) Exports and Imports of Goods: It included export and import of visible items.

(tea, clothes etc)
ii) Exports and Imports of services: It includes large variety of non factor services

(invisible items) Eg-shipping, Banking etc
iii) Unilateral transfer to and from abroad. It includes gift ,donation and
remittance etc. It is one way transaction.
iv) Income receipts and payments to and from abroad: It includes investment
income in the form of interest rent and profit.
B) Capital Account:
i) Borrowing and Lending to and from: It includes borrowing from abroad by
private, government. All transaction of lending to abroad by private sector as
well as government sector.
ii) Investment to and from abroad: It included in the form of FDI (Foreign Direct
Investment , MNC) and FII( Foreign Institutional Investment also known as
portfolio investment - purchase of shares and invest in mutual fund)
iii) Change in Foreign Exchange Reserve: It serves as the financing item in India’s
BOP.

Balance of Trade: It refers to international trade of exports and imports of visible items. It
does not record any transaction of capital nature. It is a part of BOP. Unfavourable balance of
Trade can be met out of favourable BOP.

Autonomous Items: Refers to that international economic transaction which takes place due
to some economic motive such as earning profit. It is independent of the state of BOP. This
Transaction takes place in both current and capital account. It is also known as ‘above the
line’.

Accommodating Items: Refers to the transaction which are undertaken to cover up deficit or
surplus in autonomous transaction. It is undertaken to maintain balance in BOP. It takes place
only on capital account. It is also known as ‘below the line’

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