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The Capital Account component in Balance of Payments (BoP)

Capital account records public and private investment, and lending activities. It is the net change in foreign ownership of domestic assets. If foreign ownership of domestic assets has increased more quickly than domestic ownership of foreign assets in a given year, then the domestic country has a capital account surplus. On the other hand, if domestic ownership of foreign assets has increased more quickly than foreign ownership of domestic assets in a given year, then the domestic country has a capital account deficit. It is known as “financial account”. IMF manual lists out a large number of items under the capital account.… Read the rest

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The Current Account Component in Balance of Payments (BoP)

The Current Account Component

The Current Account records a nation’s total exports of goods, services and transfers, and its total imports of them. The current account is subdivided into two components (1) balance of trade (BoT), and (2) balance of invisibles (BOIs).

Structure of Current Account in India’s BOP Statement

A. CURRENT ACCOUNT

I. Merchandise (BOT): Trade Balance (A-B)

A. Exports, f.o.b.
B. Imports, c.i.f.

II. Invisibles (BOI): (a + b + c)

a. Services

i. Travel
ii. Transportation
iii. Insurance
iv. Govt. not elsewhere classified
v. Miscellaneous

b. Transfers

i. Official
ii. Private

c. Income

i. Investment Income
ii. Compensation to employees

Total Current Account = I + II

1.… Read the rest
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Translation Exposure Management in International Finance

Translation (accounting) exposure arises from the need to, for purposes of reporting and consolidation, to convert the financial statements of foreign operations from the local currency (LC) involved to the home currency (HC). If exchange rates have changed since the previous reporting period, this translation, or restatement, of those assets, liabilities, revenues, expenses, gains and losses that are denominated in foreign currencies will result in foreign exchange gains or losses.

The most common means of protecting against translation exposure is balance sheet hedging. This involves attempting equalize exposed assets and liabilities. For example, a company may try to reduce its foreign currency denominated assets if it fears a devaluation of the overseas currency, by running down cash balances, chasing debtors and reducing stock levels.… Read the rest

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Objections Against Advertising

Economic objections against Advertising

The criticisms leveled against modern advertising on economic grounds can be summarized as follows:

  1. Advertising creates monopolistic tendencies: It is argued that skillful and forceful advertising tends to create semi-monopolies particularly for branded goods. Their plea is that the advertisements create new demands so that one product is preferred to the exclusion of others. But this allegation is baseless. Monopoly is not possible in a competitive market. Advertising stimulates competition. Very often many small advertisers complete successfully against the bigger traders.
  2. Advertising is unproductive: It is often argued that advertising is unproductive since it does not produce any tangible products.
… Read the rest
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Increase in Power of Organised Retail

The bargaining power of organized retail translates directly into higher gross margins for the retailers. At present there are a large number of independent retailers with little bargaining power vis-à-vis manufacturers, distributors and wholesalers. The manufacturers have been promoting their brands and generating consumer demand for branded products. This makes it necessary for all varieties of stores especially in urban areas to stock branded products. The manufacturers take advantage of the consumer pull to limit margins to the retailers. The retailers manage their profitability by operating on a very low cost basis. This is possible because of low rental expenses due to historical reasons and low labor costs due to employment of family members in the store.… Read the rest

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Increased Investment in Retailing

The prospects for significant modernization and development in retailing will depend on the nature of investment in this sector. The investment will be of two types-foreign and domestic. The quantum and nature of investment will depend on the factors outlined earlier namely economic development; civic situation; consumer needs; attitudes and behavior; and government policies.

Although FDI is not yet permitted in retailing, a number of global retailers are testing the waters by signing technical agreements and franchises with Indian firms. Fast food chains like McDonald‘s and Pizza Hut are already operating in the metros. A Marks and Spencer store is already operational in Mumbai.… Read the rest

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