What is Balance of Payment

Meaning of Balance of Payment 

Balance of Payment means difference between export and imports of goods and services. It is balance of trade plus other payments due to foreign investment and capital accounts. It  is flow of cash between domestic country and all other foreign countries. It includes not only import and export of goods and services but also includes financial capital transfer.


Formula of Balance of Payment 


BOP = BOT + (Net Earning on foreign investment - payment made to foreign investors) + Cash Transfer + Capital Account +or - Balancing Item or BOP = Current Account + Capital Account + or - Balancing item ( Errors and omissions)

Types of Balance of Payment

There are two main types of balance of payment. One is favorable and second is unfavorable. Balance of Payment will be favourable, if you have surplus in current account for paying your all past loans in your capital account. Balance of payment will be unfavourable, if you have current account deficit and you took more loan from foreigners. After this, you have to pay high interest on extra loan and this will make your BOP unfavourable.
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Education : What is Balance of Payment
What is Balance of Payment
Education
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