What is balance of Payment, Trade deficit, Current account deficit and capital deficit. ?

Question BankCategory: Finance & EconomyWhat is balance of Payment, Trade deficit, Current account deficit and capital deficit. ?
Nitu asked 5 months ago

What is balance of Payment and how it is related with Trade deficit, Current account deficit and capital deficit and foreign exchange reserve of India.?

1 Answers
Aman answered 5 months ago

Balance of Payment:-
Balance of payment is an annual statement of accounts of all monetary transactions of a country with rest of world. In short, it shows inflow & outflow of foreign currencies for a country in a year. 
Trade Deficit /Surplus:-
Excess of value of import over export of goods (only goods) for a country is known as Trade Deficit. If value of Export is more than import of goods for a country , then the difference is known as trade surplus.
Current Account Deficit /Surplus:-
If a country has earned more foreign exchange than it has spent on its current account (Balance of Trade & balance of invisibles) in a year then difference is known as Current account surplus. 
If a country has spent more foreign exchange than it has earned on its current account (Balance of Trade & balance of invisibles) in a year then difference is known as Current account Deficit. 
Current account includes balance of trade (export/import of goods) and balance of invisible (export/ import of services, private transfers & official transfers of foreign exchange.)
Capital Account Deficit /Surplus:-
Capital account includes flow of capital whether non-debt creating flow (FDI, FPI) or debt creating flow of capital in foreign exchange. 
If a country has paid more foreign exchange than it has received on its capital account (debt or non-debt flow of capital) in a year then difference is known as capital account Deficit. 
If a country has received more foreign exchange than it has paid on its capital account (debt or non-debt flow of capital) in a year then difference is known as capital account Surplus.
To understand their relation and for more detail Click here
 

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