Movement of Capital (Capital inflow)
- Borrowing
- Re-investment
With the movement of capital out, depicts reserve movement of capital. So, B.O.P always shows a balanced state of balancing item.
The imports must be paid for even when the current receipts are insufficient.
If debts are higher than credits, finances flow from somewhere as indicated above.
If there is a surplus, capital goes somewhere e.g increase foreign exchange reserves, giving aid, retain it, IMF or abroad.
The table below shows the components of a B.O.P statement:
|
|
Debts (-) |
Credit (+) |
Balance |
1. Current |
B.O.P Current Account (i) Visible (ii) Invisible Services |
40,000 10,000 |
60,000 5,000 |
20,000 -5,000 |
2.Capital Account |
(i) Capital Flow |
30,000 |
10,000 |
-20,000 |
(ii) Balance Item Deficit |
80,000 |
5,000 |
|
b. A deficit on invisible balance of trade.
c. A deficit on overall B.O.P.