Full Form of BOP

Full-Form of BOP (Balance of Payment)

The full form of BOP stands for Balance of Payment. If you see the word carefully, “Balance Of Payment” it means what is the balance after all payments are made. So it is actually a calculation of all the payments and receipts of several goods and services between one country and the rest of the world in a given period of time. This is a kind of record keeping where you maintain double-entry accounting. Lots of information can be obtained by studying the BOP structure of a country.

Features

Full Form of BOP

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Source: Full Form of BOP (wallstreetmojo.com)

Formula

There is no such formula. The concept is that by adding balances of the three accounts, the net should be zero. So:

BOP = Current Account + Capital Account + Financial Account
= 0

Differences will show if there is a deficit or surplus of foreign exchange.

Example

Calculate BOPCalculate BOPThe formula for Balance of Payment is a summation of the current account, the capital account, and the financial account balances. The term balance of payments refers to the recording of all payments and obligations pertaining to imports from foreign countries vis-à-vis all payments and obligations pertaining to exports to foreign countries. It is the accounting of all the financial inflows and outflows of a nation.read more based on the information mentioned below:

  • Export of Goods – $ 2,000,000
  • Imports of Goods – $ 5,000,000
  • Export of Services – $ 1,000,000
  • Import of services – $ 2,000,000
  • Import of research – $500,000
  • Non-Financial Assets bought in other countries – $5,000,000
  • Financial Investments are made in other countries – $7,000,000
  • FDI received – $5,000,000
  • FII received – $ 4,000,000
  • Reserve of the country – $50,000,000

Solution:

Balance of payment

Calculate the BOP

Components

Components of BOP

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Source: Full Form of BOP (wallstreetmojo.com)

#1 – Current Account

It deals with the various inflow and outflow from goods and services exchanged between nations. If goods and services are being exported to different nations, then that leads to an inflow of money. So this carries a credit balance.

#2 – Capital Account

This account impacts when non-financial assets are either bought or sold. Suppose the land is being sold to individuals from other nations. Then that is an inflow of money, so it will carry a credit balanceCredit BalanceCredit Balance is the capital amount that a company owes to its customers & it is reflected on the right side of the General Ledger Account. Usually, Liability accounts, Revenue accounts, Equity Accounts, Contra-Expense & Contra-Asset accounts tend to have the credit balance. read more.

#3 – Financial Account

This is a volatile account, and it depends on the investments made by other nations for the purchase of securities. If individuals from your country buy financial securities in other nations, then that is the outflow of money, so debit.

Importance

Difference Between BOP and Balance of Trade

The balance of trade only focuses on the difference between export and import of goods, but BOP is the actual movement of foreign exchange. The foreign exchange movement can be for several factors. The export and import of goods is a part of it. So if someone wants to concentrate only on the import and export of goods, then they should consider the balance of trade.

Conclusion

BOP is needed to understand the state of a country. It helps the government to focus on sectors that need attention. So BOP should be properly maintained, and proper action should be taken to see the indicators from BOP.

Recommended Articles

This has been a guide to the What is the Full Form of BOP, i.e. (Balance of Payment) and its definition. Here we discuss the formula to calculate the BOP example, features, and components along with importance. You may refer to the following articles to learn more about finance –