Balance Of Payment (II. Capital Account: Like capital receipts and capital…
Balance Of Payment
All economic transactions (govt & private) of a country with the outside world in a given year.
Double entry book keeping
=> recording each transaction twice consisting of two opposite entries with equal values (credit and debit entry)
I. Current Account
: Like revenue receipts and revenue expenditures.
Single time and one way
: receipts against export of merchandise
to other countries.
: payment for import of merchandise
from other countries.
3. Trade Balance
= Export - Import
: Export and import of services e.g. travel, transportation, insurance, GNIE (govt not included elsewhere), communication, construction, financial, IT, ITES, news agency, management etc
: income from investments in the form of dividends, profit and interest from loans, rent from house property and income generated through employment.
: Grants, gifts etc. which does not have quid pro quo (one way).
= Trade balance + Net Invisibles
II. Capital Account
: Like capital receipts and capital expenditures.
Two way and multiple transactions
i. External Assistance
: transactions of official (govt) bilateral and multilateral loans.
ii. External Commercial Borrowings
: loan transactions by commercial enterprises. In the form of
availed from non-resident lenders with a min avg maturity of
. ECB can be raised only for specific purposes. It also covers FCCBs and FCEBs.
iii. Short Term debt
: less than 3 years.
iv. Banking Capital
: Foreign asset of CBs, Foreign liabilities of CBs, Others.
v. Foreign Investments
: FDI and FPI
vi. Other flows
: include delayed export receipts, leads and lags in export receipts, funds held abroad.
= sum of i to vi
In the Suppliers' credit only two parties i.e. exporters and importers are involved while in buyers credit a third party i.e. bank or FI is involved.
Foreign Currency Convertible Bonds (FCCB):
bonds issued by an Indian Company expressed in foreign currency. Principle and interest payable in that currency only.
Foreign Currency Exchangeable Bonds:
Issued to persons who are
residents outside India
. Expressed in
. Exchangeable into equity share of another company (Offered Company). P&I payable in that currency only.
: Deposits received from NRIs e.g.
Foreign Currency NR (Banks) or FCNR(B)
NR External Rupee A/c or NR(E)RA
NR Ordinary Rupee A/c or NRO
FCNR(B) held in currencies - USD, Pound Sterling, Euro, Japanese Yen, Australian $, Canadian $. Only term deposits of one to three years maturity.
NR(E)RA held in Indian Rupee. Term deposits(1-3 years) and Saving deposits.
NRO held by Indians ordinarily living abroad. Held in Indian Rupee. Current, Savings, RD, FD accounts.
III. Errors and Omission
: difference between debit and credit entries of all transaction.
IV. Overall Balance
= Current Account Balance + Capital Account Balance
V. Forex Reserves
: Overall balance is added to Forex reserves. Consists of
Foreign Currency Assets
Gold Stock of RBI
holdings of govt,
: Investment through the mode other than the stock exchange.
Includes - Shares acquired by way of IPO, preferential allotment, offer for sale through private arrangement and Transfer of shares by way of offer for sale through private arrangement.
Direct contact between the
Aravind Mayaram Committee
on FDI and FII suggested the investment in a company above 10% needs to be treated as FDI.
Portfolio or Rentier Investment
: Investment through stock exchange i.e. secondary market.
Investment in various FIs like shares, debentures of a company through secondary market.
- FII, Depository Receipts, Offshore Funds.
Foreign Institutional Investment (FII):
Portfolio investment by FIs like MFs, Insurance Cos, Pension Funds, etc. in shares and debentures.
: Companies go abroad to sell their shares in foreign capital market e.g. American DR, Global DR, Indian DR etc.
: Money raised from offshore destination like Cayman Islands, Isle of Man, Mauritius and British Virgin Islands etc. by MFs and other funds.
: reserve created by IMF to help countries that have BoP problem. Members have to contribute to this account in proportion of their IMF Quota (membership fee).
SDR is an avg exchange rate derived from 5 currencies -
USD, Euro, UK Sterling Pound, Japanese Yen ad Chinese Renminbi (RMB)
Members are entitled to get loan from IMF's Special Drawing Account. (
up to 200% of its quota
). Also know as
. IMF does not lend directly but the member in strong position.
: A portion of fund. Consists of India's quota to IMF and lending to General Resource Account (pool of members' quota payment) of IMF.
Member required to pay
of its quota to SDRs or in foreign currencies acceptable to IMF.