Balance de paiement

1. Balance of payment &
exchange rate
SUBMITTEDTO:-
MR.AJAY SAMYAL.
SUBMITTED BY:-
MEENAL GUPTA
827

2. Balance of payment
A systematic record of all economic transactions between its
residents and residents of foreign countries.
It’s a statement of accounts of these receipts and payments.
It includes visible, invisible items and capital transfers.

3. Components of BOP
1. Current account
Export and import of goods.
Export and import of services.
Unilateral transfers from one country to the other.
2. Capital account
Foreign investment
Loans and borrowing.
Changes in reserve of gold and foreign exchange with the central
bank of the country.

4. Types of BoP
Balanced BoP:-
Favorable BoP:-
Total receipts = Total payments
Total receipts > Total payments
Unfavorable BoP:- Total receipt < Total payments

5. BoP
Itincludes visible,
invisible item and capital
transfers.
Itis a wider concept and
it includes BoT
.
Unfavorable BoP can’t
met out of favorable
BoT
• Itincludes only visible
item.
• Itis narrow concept as it
is a part of BoP.
• Unfavorable BoT can be
met out by favorable
BoP.

6. Foreign Exchange Rate
The rate of exchange measures number of units of one
currency which is exchanged in the foreign market for one
unit of another
.
Itexpresses the ratio of exchange between the currencies of
two countries.
Example:-
$1 =Rs 50 Or Rs1=150$=2 cents

7. System of exchange rate
Fixed exchange rate system:- rate of exchange is fixed by thegovernment.
1. Gold standard system:- value of one currency in terms of other currency was
fixed considering gold value of each country.
2. Bretton Woods system:- different currently were pegged to one currency, that
is US dollar and US dollar was assigned gold value at a fixed price. Value of one
currency in terms of US dollar ultimately implied value of that currency in terms
of gold.
Flexible Exchange rate system:- Rate is determined by the demand for and
supply of different currencies in the foreign exchange market.

8. Determination of exchange rate
Itis determined by forces of supply and demand in the foreign exchange
market.
Demand for foreign exchange
1. Payments of international loans.
2. Gifts and grants to rest of the world.
3. Investment in rest of the world.
4. Direct purchase and imports from rest of the world.
Supply of foreign exchange
1. Exports of the country.
2. Direct foreign investment.
3. Direct purchases of goods and services.

9. Equilibrium rate of exchange

10. Foreign exchange market
Itis the market for national currencies of different
countries in the world.
Functions of foreign exchange market:-
T
anferfunction
Credit function
Hedging function

11. Operations of foreign exchange
market
Spot market:- Market which handles only spot
transactions or current transactions. Itis of “daily nature
please”.
Forward market:- Market which handles suchtransactions
of foreign exchange as are meant for future delivery. Itonly
caters to forward transactions.

12. Thank you