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    1 :
    2 :
    3 : Presentation on Balance of Payment Submitted to: Ma'am Farah Naz Naqvi
    4 : SUBMITTED BY: GROUP of BRILLIANT STUDENT Includes:
    5 : context Why It is Known As Balance Of Payment and Definitions Difference Between BOT And BOP Importance , Purpose and Working Components and Composition Of Balance Of Payment Account Types Of Equilibrium Pakistan’s Balance Of Payment and History Causes Of Adverse Balance Of Payment Measures To Correct Balance Of Payment Current Position Balance Of Payment Position Comparison Between Import And Export Markets Improvements
    6 : PART NO 01: Why It is Known As Balance Of Payment Definitions Difference Between BOT And BOP Importance Purpose
    7 : WHY IT IS CALLED BALANCE OF PAYMENT? If a country is importing more than it exports, its trade balance will be in deficit, but the shortfall will have to be counter-balanced in other ways – such as by funds earned from its foreign investments, by running down central bank reserves or by receiving loans from other countries That why it is known as balance of payment.
    8 : DEFINATIONS OF BALANCE OF PAYMENT GENERAL DEFINATION BOP ACCOUNTS ARE THE RECORDS OF MONETARY TRANSACTION INCLUDING PAYMENT FOR THE IMPORT AND EXPORT OF GOODS SERVICES FINANCIAL CAPITAL FINANCIAL TRANSFER
    9 : DEFINATIONS(CONT’) AUTHENTICAED DEFINATION ACCORDING TO IMF PUBLICATION BALANCE OF PAYMENT MANNUAL BOP IS A STATISTICAL STATEMENT SHOWING THE; TRANSACTION OF GOODS AND SERVICES Changes of ownership and other changes in that country’s monetary gold and claims on liabilities to the rest of the world
    10 : DEFINATIONS(CONT’D) Unrequited transfers and counterpart entries that are needed to balance, in the, any entries for the forgoing transactions and charges which are not mutually offsetting.
    11 : WHAT IS BALANCE OF TRADE?(BOT) Balance of trade refers only to the merchandise balance or balance on ‘visible transactions’ alone. Visible items refer to the commodity exports and imports entering the balance of trade.
    12 : DIFFERENCE BETWEEN BOP AND BOT B BOT REFERS ONLY TO THE IMPORT AND EXPORT OF VISIBLE GOODS.THEY ARE VISIBLE BECAUSE THEY ARE RECORDED AT THE CUSTOM BARRIER OF THE COUNTRY. BALANCE OF PAYMENT REFERS TO THE SUM OF BOTH THE BALANCES ON THE VISIBLE TRANSACTION AS WELL AS INVISIBLE ITEMS.
    13 : DIFFERENCE(CONTD) BALANCE OF PAYMENT ALSO INCLUDES CAPITAL AND FINANCIAL ACCOUNT IMPORT AND EXPORT OF SERVICES SUCH SERVICES MAY BE OF VARIOUS KINDS FOR WHICH PAYMENT MAY BE MADE OR RECEIVED FOR EXAMPLE TRANSPORT CHARGES SHIPPING FREIGHT PASSENGER FARES
    14 : IMPORTANCE OF BOP BASIC INSTRUMENT MEARUES THE INTERNATIONAL TRANSACTION. MAJOR INDICATOR OF COUNTRY’ STATUS DEPICT TRUE PICTURE OF ECONOMY TELL US ABOUT SHORT TERM AND LONG TERM ASSETS. TELL US ABOUT SURPLUS AND DEFICIT BOP STATE THE INTERNATIONAL ECONOMIC RELATION OF A COUNTRY.
    15 : IMPORTANCE(CONT) A GUIDE TO MONETARY,FISCAL AND EXCHANGE RATE. INFORM GOVT ABOUT INTERNATIONAL POSITION HELPS TO MAKE CORRECT DECISION To know the influence of foreign trade on national economy Is currency becomer weaker or stronger? How effective are monetary and fiscal policies?
    16 : PURPOSE OF BALANCE OF PAYMENT BALANCE OF PAYMENT THE MAIN PURPOSE IS TO PROVIDE THE GOVT INFORMATION ABOUT THE INTERNATIONAL ECONOMIC POSITION AND TO MAKE THE CORRECT DECISION REGARDING NONETARY AND FISCAL POLICIES AND ABOUT TRADE AND PAYMENT.
    17 : Working of balance of payments Components and Composition Of Balance Of Payment Account Types Of Equilibrium Types Of disequilibrium PART N0 02:
    18 : WORKING:  
    19 : COMPONENTS OF BOP’ s ACCOUNT The Balance of Payment for a country is the sum of the CURRENT ACCOUNT The current account is the sum of Net Sales from trade in goods and services Net Factor Income (such as interest payments from abroad),and Net Unilateral Transfers from abroad (such as gifts and foreign aid). CAPITAL ACCOUNT The capital account records the net change in ownership of foreign ownership of domestic assets. It includes Loans and investments between the country and the rest of world All international trade transactions All international unilateral transfers
    20 : OFFICIAL RESERVE ASSETS ACCOUNT The official reserve account records the government’ s current stock of reserves Reserves include; Official Gold Reserves Foreign Exchange Reserves IMF Special Drawings Right. Countries who try to control the price of their currency will have large net changes in their official reserve accounts.   Some of the most extreme examples include CHINA and JAPAN.
    21 : TYPES OF BOP EQUILIBRIUM There are two types of BOP equilibrium Static Equilibrium In static equilibrium, exports equal imports including Exports and imports of services as well as goods Dynamic Equilibrium The condition for dynamic equilibrium in the long run is that exports and imports differ by the amount of long term autonomous capital movements made in a normal direction CAUSES OF DISEQUILIBRIUM IN BOP Population Growth Development Programmes Demonstration Effect Natural Factors Cyclical Fluctuations Inflation Poor Marketing Strategies Flight Of Capital Globalization  
    22 : TYPES OF BALANCE OF PAYMENT disequilibrium   1.Cyclical Disequilibrium Cyclical disequilibrium occurs because of two reasons: countries may be passing through different paths of business cycle countries may be following the same path but the income elasticities of demand or price elasticities of demand are different.  2.Secular Disequilibrium The secular BOP occur because of long-run changes in an economy arises due to lack of sufficient funds available to finance the import surplus the long-term capital outflow falls short of the surplus savings
    23 : 3.Structural Disequilibrium Structural disequilibrium two sub types i) Structural Disequilibrium at Goods Level Structural disequilibrium at goods level occurs when a change in demand or supply of exports or imports alters a previously existing equilibrium (ii) Structural Disequilibrium at Factors Level Structural disequilibrium at the factor level results from factor prices which fall to reflect factor endowments
    24 : General Measures to Correct BOP Disequilibrium To correct the different types of disequilibrium in BOP the following general measures are used:   (a) Exchange depreciation (price effect) (b) devaluation (by government) (c)Tariffs (d) Import quotas (e) Export duties
    25 : History Causes Of Adverse Balance Of Payment Measures To Correct Balance Of Payment PART NO 03:
    26 : Pakistan Balance of payments situation has not been satisfactory since independence. The country with the exception of three years i.e.1947-48, 1950-51, and 1972-73. Excluding the three years stated above, Pakistan has been facing a deficit in its balance of payments since 1970 to date. The resource gap is being met through loans and grants from various international agencies, by increasing exports, minimizing imports etc.  HISTORY
    27 : TREND, VOLUME AND VALUE OF FOREIGN TRADE SINCE 1947: FIRST PHASE (1948 TO 1955)  The special features of this phase were, Devaluation of pound sterling in 1948, Decrease in external value of Indian rupee a major importer of Pakistan’s jute, Non-devaluation of Pakistani rupee, Decrease in volume of trade (open general license scheme) Korean war Import policy was liberalized. End of Korean war, Reduction of imports by advanced countries, Abolished open general license(OGL)  
    28 : Devaluation of currency, Import of food grain,   During this period foreign trade expanded Martial law government took many steps to boost exports Pakistan trade relations with east European countries are improved. 3rd (1965-1977);  THE PERIOD FROM 1965 TO 1977 was a period of disaster for Pakistan During 1966-1967,there was a serious food shortage and Pakistan had to import wheat There was an export shortage Pakistan faced a serious shortage of foreign exchange The exports fell short of target due to the following reasons, 1.Nationalization of industries, 2.Monetary and fiscal changes, 3.Floods in 1973-1974,   2nd PHASE (1955 TO 1965)
    29 : 4th PHASE (1978-2009): The period from 1978 to 1983 is treated as a period of economic prosperity and stability In January, 1981, one rupee note was declined from dollar which accelerated the exports During the period of 1985-1986, exports increased than imports but at the same time foreign remittances started declining Foreign debt increased from 12 billion dollars in1984 to 16 billion dollars in 1991 Many political changes appeared in the country. Total exports which were 16 billion dollars reached in2008-2009 percentage share of exports of primary commodities, 11%, manufactured goods 61.4% .total imports declined to 26.7 billion dollars in 2008-2009.
    30 :
    31 : CAUSES OF ADVERSE BALANCE OF PAYMENT FISCAL POLICES: Pakistan’s fiscal policy has been a serious obstacle to the expansion of its exports. EXPORT OF PRIMARY COMMODITIES The main factor for unsatisfactory export performance is stated to be the adverse trend in the terms of trade INFLATION Inflationary conditions are a serious obstacle to the promotion of exports. Inflation results in a rise in the domestic cost of production
    32 : CONSUMTION ORIENTED SOCIETY Due to rapid rise in population , the manufactured goods are mostly consumed in the country so, a smaller portion is left for exports. TRADE BARRIERS OF DEVELOPED COUNTRIES The trade barriers is one of the important factor preventing greater production and export by some industries in Pakistan, particularly the cotton textile industry. IMPORT SUSTITUTION POLICY OF PAKISTAN The emphasis of Pakistan’s industrial policy has been more substitution than on exports expansion , the position of domestic industries results in higher prices for the consumer
    33 : SLOW GROWTH OF PRODUCTION Pakistan’s major exports comprise of agriculture goods i.e. cotton, its products and rice. Pakistan has a large area of cultivation but it is not utilized properly. OUT DATED TECHNIQUES OF PRODUCTION The industrial sector as well as agriculture sector in our country are still operating on the outdated machinery.
    34 : MEASURES TO CORRECT BALANCE OF PAYMENT
    35 : Current Position Balance Of Payment Position PART NO 04:
    36 : CURRENT POSITION Balance of payment’s surplus or deficit is mainly the combination of current and capital account. During July- April 2010-2011 the country witnessed a surplus of $ 1,210 million.
    37 : CURRENT ACCOUNT BALANCE: Pakistan has long suffered a current account deficit. During July-April 2010-11, the current account deficit turned to surplus . The last year deficit of $3456 million is turned into surplus with the amount of $748 million.
    38 : IMPROVEMENT IN CURRENT ACCOUNT This year’s improvement in current account is witnessed across the broad in all sub-components including
    39 : SUMMARY OF CURRENT ACCOUNT
    40 : REASONS OF IMPROVEMENT Buoyancy in current account to turn it into surplus in the form of; higher export growth, strong and sustained inflows of workers’ remittances, logistic support related receipts and, Grants received for flood relief.
    41 : CAPITAL AND FINANCIAL ACCOUNT The capital and financial account surplus deteriorated . The capital account surplus decline and reached to $86 million as compared to $154 million in the last year. The financial account surplus decline and reached to $412 million during July-April 2010-11 as compared to $3,533 million in the corresponding period last year.
    42 : REASONS The main reasons are; Decline in inflows which is unevenly contributed by debt creating and, non-debt creating inflows.
    43 : DEBT CREATING INFLOWS: Fall in disbursement of loans is witnessed. The inflow of disbursements of long term loans stood at $1964 million in July-April 2010-11 as compared to $3020 million in the comparable period of last year. Amortization payments witnessed some upsurge and that is of $1631 million.
    44 : NON DEBT CREATING INFLOWS Foreign direct investment (FDI) declined by 28.7 percent during July-April 2010-11as a result of fall in equity capital and reinvested earnings. While, Portfolio investment provided a cushion against worsening of financial account and recorded inflow of $298 million.
    45 : SUMMARY OF CAPITAL& FINANCIAL ACCOUNT
    46 : SUMMARY OF BOP: Source: Economic Survey of Pakistan 2010-11
    47 : Graphical Representation
    48 : Comparison Between Import And Export Markets Comparison through GDP Improvements Presented by MEHWISH FAROOQ
    49 : COMPARISON OF BOP OF PAKISTAN WITH OTHER COUNTRIES Pakistan is a developing country and is undergoing severe problems of political and economic nature due to which our balance of payment with regard to other countries is not satisfactory..
    50 : COMPARISON OF BOP OF PAKISTAN
    51 : ACCORDING TO IMPORT AND EXPORT  
    52 : ACCORDING TO GDP
    53 : Pakistan has only 5% GDP growth rate WHY?
    54 :
    55 : Improvements INCREASE IN IMPORTS:   Heavy imports are an important cause of dis-equilibrium in balance of payments. Exports have always been than imports. Merchandise imports are $ 32.3 billion in July-April 2010-11. an increase of 14.7 percent from the last year. The overall import Bill is higher by $ 4.1 billion, reflecting the impact higher global crude oil and commodity prices.
    56 :
    57 : LOW VOLUME OF EXPORTS Merchandise exports are $20.2 billion in July-April 2010-11. The growth of 27.8 percent from the last year. The lion’s share of this year’s exports came from textile sector and food group contributing 61.8 percent and 18.1 percent Major export items are;
    58 : WORKERS REMITTANCES Workers remittances are the part of current account. . Remittances for the first time in the history of Pakistan crossed the one billion dollar mark in a single month during March 2011 and remained over the one billion for second consecutive month in April 2011 which has boosted Optimism about workers’ remittances $11 billion this year. Workers’ remittances totaled $9.1 billion in July-April 2010-11 as against $7.3 billion last year depicting an increase of 23.8 percent.
    59 : CHART OF WORKERS REMITTANCES
    60 : Analysis of country-wise data OF remittance inflows 2010-2011 EU, Saudi Arabia, UK and UAE recorded strong growth of RESPECTIVELY:
    61 : TABULATION ANALYSIS
    62 : Build up in foreign exchange reserves, a surplus in the current account balance and a sufficient inflow of remittances through official banking channels have strengthened . Exchange rate averaged EXCHANGE RATE:
    63 : EXCHANGE RATE:
    64 : IMPORT EXPORT CHART
    65 : COMPOSITION OF EXPORTS &IMPORTS  
    66 :
    67 : REAL GDP GROWTH RATE OF SOME COUNTRIES  
    68 : Graphical Representation
    69 :

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