Balance of Payments - Terms

Commodity Exports and imports : 

In the balance of payments accounts of a country the most important item is commodity trade, exports and imports. While commodity from a country create claims on importing countries, commodity result in debt to the countries which have exported to this exports and imports are done by a strictly on barter basis, they are equal. Even in cases where foreign trade is planned and regulated by the government of a country, there may be  a deficit a surplus in the balance of trade of a This would lead to flow of short-term funds between the country and its trading partners, provided payments and receipts under the other heads (as shown in Table 14.1) do not eliminate the need for this flow.

Services Exports and Imports : 

Along with exports of goods a country also exports services in its which create claims against the foreigners. appear in the balance of payments accounts of a country on the receipt side. In Table 14.1, you will observe that the exports of services appear on the credit side of the balance of payments accounts. Now, form in a
country exports services requires some explanation. Major items generally included in the balance of payments accounts are payments for shipping freight services, payments banking, insurance and returns on foreign investments', expenditures by the foreign tourists and the residents of the country abroad, and expenditures by government agencies abroad, and the foreign government agencies in the country.

 Let us take the case of some country, say India. Suppose, shipping, banking insurance and such other services are provided by the Indian companies to foreign claims would be created against them thus these would appear in India's balance of payments on side. Conversely when the Indian avail the of foreign shipping corporations, and insurance they would have against the Indian concerns and these would appear in India's of on the payments side. The same is true of other receipts and payments items. 

Unilateral transfers : 

 transfers, such as remittances, gifts, grants, and indemnities, etc., do not involve any for repayment, and are, therefore, termed as transfers. These transfers may appear on both credit and debit sides of the balance of payments accounts of a country. us see what unilateral transfers would appear on the credit side of the balance of payments.  A country may receive and foreign governments and institutions involving no repayment obligation. In the of payments account, these would be shown as the receipts on the credit side. Over the three decades the less developed countries have received substantial grants from the developed countries. Remittances a recent phenomenon. In India's case have constituted the substantial portion of the unilateral transfers on the credit side of the balance of payments account. Indemnities and separations are not normal These were collected by the USA and its allies Germany after World War I. These receipts appeared in the balance of payments accounts of the recipient countries of reparations. these transfers appear on the debit side of the balance of payments then it means that the country has made gifts and has paid reparations, and has permitted remittances. 

4) Capital receipts and payments : 

Receipts and payments on account of exports and imports of commodities and services and transfers constitute the current account of the balance of payments. There is invariably a deficit or a surplus in this account. In the capital account of the balance of payments of a country, autonomous transactions involving receipts and of money capital are registered'. Capital flows between countries take various forms such as borrowings, repayments of loans and foreign private and public investments. When a country receives loans or raises equity capital the amount raised is shown as capital on the credit side. The repayment of loans and repatriation of foreign capital are shown on the debit side of balance of payments accounts. the current account, the capital account of the balance of shows a deficit or a surplus. However, it is only when we take both the current and capital accounts together that we know Whether there is a net deficit or a net surplus in the balance of accounts of the country.

5) Gold movements : 

Gold between the countries is of two kinds. First, it may be exported or imported like any other commodity. In such a case it is not to be from commodities. In the second case gold movements are caused by the need to offset deficits in the balance of payments. When this is done, gold performs the function of the medium of exchange at the international level. In the balance of payments accounts of a country, import and export of gold are treated in the same manner as exports and imports of other goods, exports of gold are shown on the credit side while imports of gold appear the debit side. Thus merely from balance of payments accounts one would fail to  know the actual reasons for gold movements.

The difference the exports and imports of a country is as the balance of trade. When exports exceed imports, the balance of is said to be favourable. Conversely when imports exceed exports, the balance of trade is considered to be The deficits in the balance of trade may be offset or accentuated upon whether the other heads have a surplus or a deficit.

This deficit could also be offset by taking short-term loans from capital-surplus developed countries and international financial institutions like the International Monetary Fund.