Importance Of Bop 6r4s6m

IMPORTANCE OF BOP •

In economics, the balance of payments, (or BOP) measures the payments that flow between any individual country and all other countries.

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It is used to summarize all international economic transactions for that country during a specific time period, usually a year.

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The BOP is determined by the country's exports and imports of goods, services, and financial capital, as well as financial transfers.

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It reflects all payments and liabilities to foreigners (debits) and all payments and obligations received from foreigners (credits).

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Balance of payments is one of the major indicators of a country's status in international trade, with net capital outflow. It is known as the economic barometer.

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Moreover, it provides the country with a means of identifying economic imbalances, and allows them to ensure they sell enough to pay for what they buy abroad.

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It helps govt. to take macroeconomic policies.

A common misconception is that balance of payments deficits are always bad for the economy. This is not necessarily true. In the short term if a country is importing a high volume of goods and services this is a boost to living standards because it allows consumers to buy more consumer durables. However, in the long term if the trade deficit is a symptom of a weak economy and a lack of competitiveness then living standards may decline.