Movement of Capital (Capital inflow)

  • Borrowing
  • Re-investment
•Reserves

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
80,000

 

a. There is a surplus on visible balance of trade.
b. A deficit on invisible balance of trade.
c. A deficit on overall B.O.P.