INDIAN SCHOOL BOUSHER

CBSE Affiliation Number: 6630203 & School Code 90252

ACADEMIC YEAR 2024 - 2025

BALANCE OF PAYMENT
SUBJECT: ECONOMICS RESOURCE PERSON: JP MISHRA
GRADE: XII WORKSHEET & REVISION EXERCISE
DATE: ___________ NAME OF THE STUDENT: ________________________ SECTION: ______

SL.N
QUESTIONS AND ANSWERS
O
1 What is BOP?

 BOP is an accounting statement of all economic transactions

between a country and rest of the world in a fiscal year.
 It is a flow concept.
 Economic transactions include:-
VIU-C
 Visible items
 Invisible items
 Unilateral transfers
 Capital transfers

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2 Explain the double entry system of a BOP statement.

BOP > CURRENT A/C > BOT

3 Differentiate BOP and BOT.

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4 What are the components of Current a/c and capital a/c of BOP?

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 Components of Current a/c Components of Capital a/c
Introduction: Introduction:
It is that account in BOP which Components of Capital a/c in
records exports and imports of BOP are foreign
goods, services and investments,
unilateral transfers. borrowings/loans and
change in foreign exchange
reserves.
1. All export of goods are 1. Foreign investments has 2
recorded as credit items (+) components:-FDI &FII
because of inflow of foreign (Portfolio Investment)
exchange. FDI/FII by non-residents of our
On the contrary, all imports of country are recorded in credit
goods are recorded as debit items as it results in inflow of
items as it results in outflow of forex to our country.
forex from our country. On the contrary, FDI/FII by
resident in rest of the world is
recorded as debit item, as it
results in outflow of forex from
our country.

2. It records exports and imports 2. Borrowings/loans have 2

of services (invisibles) which components:-
doesn’t cross any borders and Commercial borrowings
splits into factor services and which are done by private
non-factor services (shipping, sector and government from
insurance, banking). internal/foreign markets.
Borrowings form IMF and
All exports of services are world banks: All borrowings
recorded under credit side as it are debt creating capital
results in inflow of forex, transactions recorded in credit
whereas all imports of services side as it leads to inflow of
are recorded under debit side as forex to country. On the
it results in outflow of forex. contrary, loan to rest of the
world is recorded under debit
side as it leads to outflow of
forex.
3. It records unilateral transfers 3. Change in forex reserve/
by way of gift, donation, aids and official reserve:-
scholarships. All receipts of A change in forex reserve
unilateral transfers are recorded affects BOP.
under credit side as it results in Withdrawal form Reserve
inflow of forex while all banks is considered as inflow of
payments of unilateral transfers currency so kept under credit
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 are recorded under debit side as side. (inflow)
it results in outflow of forex.[ The addition of forex to RBI is
considered as debit items.
(outflow)
4. Does not affect the asset and 4. Affects the asset and liability
liability position of the country. position of the country.

5. It is a flow concept. 5. It is a stock concept.

5 Explain the equilibrium and disequilibrium of BOP.

Equilibrium in BOP:
Current account balance + Capital account balance = 0
There is no movement of official reserves of the Central Bank
i.e. inflow of foreign exchange = outflow of foreign exchange.

Disequilibrium in BOP:
When current account Balance + Capital account Balance is not equal to
zero. (It may be Positive and Negative).
(i) Surplus BOP: Here autonomous receipts are more than the
autonomous payments.
(ii) Deficit BOP: Here autonomous receipts are less than the
autonomous payments.
BOP is always balanced, in case there is imbalance, it is corrected
through accommodating transactions.

6 What is the difference between Autonomous and

Accommodating transactions?
Autonomous Accommodating
Basis
transactions transactions

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 It refers to international They are transactions which
transactions which take place to cover deficit
occurs due to some or surplus in autonomous
economic motive such transactions.
Meaning
as profit maximization. Eg: Withdrawal from foreign
Eg: Import of machinery exchange reserve, loan
form Japan, FDI etc. from IMF etc to maintain
BOP.
These items are These items are dependent
Nature independent in nature. in nature.
These items take place These items take place only
Account in current and capital in capital a/c.
a/c.
These items are also These items are also known
known as above the line as below the line items as
items as they are they are recorded as
Alternative
recorded as first items secondary items after
names
before calculating calculating surplus or
surplus or deficit. deficit.

7 What causes Disequilibrium of BOP in the economy?

 Disequilibrium in BOP arises in the form of surplus or deficit in
BOP.
 BOP disequilibrium is a serious issue for policy makers
 A chronic BOP deficit leads to downgrading the economy in the
world community.
These occur due to the following reasons:-
 Economic Factors
 Large scale developmental expenditure
 Cyclical fluctuations in general business activity
 Higher rate of inflation in domestic country
 Change in the pattern of demand by the people
 Political Factors
 Political instability may cause large scale capital outflow
 Changing government policies due to political disturbances
causes loss of faith of investors
 Social Factors
 Change in taste, preference and fashion may affect imports
and exports
 Demonstration effect leads to higher imports

8 BOP always balances. Elucidate.

BOP always balances. This statement can be proved from the following
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 arguments:-
 BOP is based on the principles of Double Entry Book Keeping
Systems.
 Accordingly each transactions have dual entries (Contra entries).
 Each credit/debit entry has its equal size of debit/credit entry.
 Hence the overall balance is zero.
 So BOP always balances in accounting sense.
 In operational sense it may not be. It may be surplus or deficit.

SL.N REVISION EXERCISE

O
1 BOP is measured as:
(a) difference between visible items of exports and imports
(b) difference between invisible items of exports and imports
(c) difference between external and internal flow of gold
(d) difference between all receipts of foreign exchange and payments of
foreign exchange

2 Difference between the values of imports and exports of visible items is

called
-------- BOT

3 Economic transactions in BOP are

a) Visible items b) Invisible items c) Capital transfers d) All of these

4 Transactions which take place on both current and capital account are
a) Autonomous b) Accommodating
c) Both (a) and (b) d) neither (a) and (b)

5 Foreign exchange transactions which are independent of other

transaction in the BOP Account are called
a) Current account transaction b) Capital account transaction
c) Autonomous transactions d) Accommodating transactions

6 Export of machinery is recorded in the

a) credit side of capital account b) debit side of capital account
c) credit side of current account d) debit side of current account

7 Loans Taken from the word Bank are recorded in the

a) Credit side of the capital account b) Debit side of the capital account
c) Credit side of the current account d) Debit side of one current account

8 In which of the following categories are the transactions of balance of

trade recorded?
(a) Visible items (b) Invisible items
(c) Capital transfers (d) All of these
9 Invisibles balance refers to:

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 (a) Exports - Imports
(b) Trade balance + Balance of non-factor services
(c) Balance of non-factor services + Balance of transfer
(d) Exports - Imports + Balance of factor services

10 Exports = Rs 1,000 lakh, imports = Rs 1,650 lakh, balance of trade

shows:
(a) surplus of Rs 650 lakh (b) deficit of Rs 650 lakh
(c) balance of Rs 2,650 lakh (d) none of these

11 ASSERTION - REASON:
Assertion (A)- Economic transactions of Indian investing in assets abroad
is recorded under debit side of capital account in BOP.
Reason (R)- BOP is the difference between, inflow of foreign exchange
and outflow of foreign exchange on account of economic transactions.
Alternatives:-
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the
correct explanation of Assertion (A)
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not
the correct explanation of Assertion (A)
c) Assertion (A) is true and Reason (R) is false
d) Assertion (A) is false and Reason (R) is true

12 In a hypothetical economy, the following data is given

SL N Items Amount (in Rs.

Crores)
1 Merchandise Exports 100
2 Merchandise Imports 90
3 Tourism 70
4 Net Remittances from abroad ―20

The value of balance on current Account would be Rs. _______________

crores.
(a) 100 (b) 70 (c) 80 (d) 60

13 Statement -1 : BOP is an accounting statement which records all the

economic
transactions that take place between the residents of a country during a
given period of time.
Statement -2 :Current account of BOP records that transactions that
relate to assets or liabilities.
Alternatives:
(a). Both the statement are true.
(b) Both the statement are false.
(c ). Statement 1 is true, but Statement 2 is false
(d.) Statement 2 is true , but Statement 1 is false

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14 Which of the following items is entered on the credit side of B0P
account?
(A) Investment from abroad (B) Import of goods
(C) Gifts paid to foreigners
(D) Repayment of foreign loan

15 An account indicating a systematic record of all economic transactions

between
residents of a country and residents of foreign countries during a
account yr is called ___________Account.
(A) Balance of Trade (B) Balance of Payment
(C) Government budget (D) None of these

16 Current account of BoP records

(A) Exports and import of goods
(B) Exports and import of services
(C) Unilateral transfers from and to foreigners
(D) All of these

17 Outflow of foreign exchange is recorded on the ___________sides.

(A) credit
(B) debit
(C) either (I) or (ii)
(D) neither (I) nor (ii)

18 Which of the following is a component of capital account of BoP?

(A) Export and import of goods
(B) Export and import of services
(C) Unilateral transfers
(D) Sale of assets to foreigners

19 Which of the following is included in balance of trade?

(A) Shipping
(B) Insurance
(C) Imports of goods
(D) Unilateral transfers

20 The balance of trade shows a deficit of 500 crore. The value of exports is
Rs. 700
crore. Find the value of imports.
(A) Rs. 700 crore
(B) Rs.1200 crore
(C) Rs.900crore
(D) Rs. 200 crore

21 Trade surplus refers to _________________.

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 (a) Export of goods and services > Import of goods and service
(b) Import of goods and service > Export of goods and services
(c) Export of invisible items > Import of invisible items
(d) Export of Visible items > Import of Visible items
22 Exports of COVID- 19 vaccines manufactured in India has led to -----
(a) Inflow of Indian currency
(b) Outflow of foreign currency
(c) Inflow of foreign currency and employment generation
(d) Outflow of foreign currency and employment generation

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