Balance Of Payments.

The Balance of Payments

Definition 1: The balance of payments is a record of all monetary transactions occurred between a country and the rest of the world in a given period. These transactions may include payments for exports and imports of the country for goods, services , financial capital and financial transfers. The balance of payments recorded in summary international transactions for a specific period, usually one year, but is calculated every quarter of a year. It is prepared in a single currency , typically the domestic currency of the country concerned.

When all components of the balance of payments are included, the total must add up to zero, with no possibility of a surplus or deficit. For example, if a country is importing more than it exports, its trade balance is in deficit, but lack of funds in this account will be countered by other means, such as funds obtained through foreign investment, declining central bank reserves or borrowing from other countries.

Definition 2: The balance of payments is the relationship established between the money a particular country spends in other countries and how much other countries spend in that country.

Definition 3: Is a document that all business transactions in goods, services and capital are held in a country in relation to the rest of the world over a period of time are collected.

The balance of payments (BOP ) is divided into four subdivisions :

 Checking (Current Account.)

• Balance of trade

• Balance of services

• Balance of income

• Balance of transfers.

 Capital account.

 Financial account.

 Account errors and omissions.

Current Account: The current account records the cash receipts and payments of trade in goods and services and income in the form of profits, interest and dividends earned on capital invested in another country. The current account balance will be divided into two sections. The first is known as visible balance. The second section is called Invisible balance and consists of the balance of services, income and balance transfers.

Capital Account: The second main division of the balance of payments is capital account. Capital transfers encompass all those transfers are intended to finance a good investment, these include those received from international organizations to build infrastructure.

Financial Account: Register the variation of financial assets and liabilities abroad. Therefore, includes financial flows between residents of a country and the world.

Account errors and omissions: Counting errors and omissions covers what is known as the undetermined capital, is an allowance for the statistical discrepancy of all other accounts of the balance of payments. Due to deficiencies in information systems, it is necessary to use this game to correct differences. This line of BOP provides

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