Balance of payments

[rinishj28]

1.IAI may o508 has a sum which includes " services offered abroad by a domestic software company " in its solution while calculating visible trade balance.
Shouldnt it be a part of invisible trade balance?

2. Another part of the sum includes "a balancing item" while calculating BOP surplus/deficit

so what is the exact formula for Bop surplus/deficit?

Current + Capital?
Or Current + Capital + errors and omissions?

 

[Graham Aylott]

Hi,

First of all note that this question is based on the old syllabus, which used different terminology for the various parts of the balance of payments compared to the current syllabus.

With regard to the " services offered abroad by a domestic software company ". Yes, services are counted as "invisible" trade and so should be included in the invisible balance, not the visible balance. Though the the current syllabus does not use the term invisible balance - it instead says "services balance".

The current syllabus doesn't refer to an (overall) "balance of payments surplus or deficit". In principle, you can add the entries for each of the three sub-accounts (current, capital and financial" and obtain a surplus or deficit for each of them individually. If you then sum all three, they should in theory sum to zero, but in practice they won't, as you cannot record every transactions. So, you add in a balancing item to make the overall sum zero.

In this question, the figure of 51,100 in part (iv) simply represents the sum of the current account surplus, less the 1,000 purchase of shares (which should go into the financial account as "portfolio investment") and the balancing item. However, this isn't really the total "balance of payments" surplus or deficit because it omits some of the other items that would be recorded in the financial account, such as the loan from the IMF.