1. Balance of payment
Definition
A Balance of Payment account is a statement of double entry system of
record of all economic transactions (involving foreign payments) between
residents of a country and the rest of the world carried out in specific
period of time.
CURRENT ACCOUNT
• All transactions relating to goods, services and unrequited transfers
constitute current account
• Flow of items pertaining to specific period of time
• Visible items include goods
• Invisible items include Services
CAPITAL ACCOUNT
• All transactions indicating changes in stock magnitudes concerning
capital receipts and payments constitute capital account
• Relates to
- Borrowing
- Capital repayment
- Sale of assets
- Change in stock of gold
- Change in reserve of foreign currency
Short term capital movement includes:
Purchase of short term securities
Speculative purchase of foreign currency
Cash balances held by foreigners
Net balance of current account
Long term capital movement includes:
Investments in shares, bonds, physical
assets etc.
Amortization of capital

2. Disequilibrium
• Total receipts and total payments inequality shows disequilibrium of
balance of payments account
• Total receipt and payment arising from autonomous transactions
determine the deficit or surplus in the balance of payments
• If payments>receipts, BOP shows Deficit
• If payments<receipts, BOP shows Surplus
KINDS OF BOP DISEQUILIBRIUM
• Fundamental Disequilibrium
• Cyclical Disequilibrium
• Structural Disequilibrium
CAUSES OF DISEQUILIBRIUM
• Increase in imports
• Slow progress in exports
• Burden of interest payments
• International developments
• Deficit in capital account