Balance of Payments 2020-05-15 08:00:00

Balance of Payments

The balance of payments (BOP) for a nation consists of three categories: Current Account, Capital Account, and Finance Account. Transactions between nations create debits and credits in these accounts, depending on which direction transactions are moving (into or out of a country). The current account consists of finished goods. The capital account consists of capital transactions. The finance account records payment flows related to changes in ownership of international financial assets and liabilities such as portfolio investment, direct investment, and reserve assets. The balance of payments should equal zero, which means that the current account = capital account + finance account. Although in practice, that rarely happens. An advantage of the BOP is that it allows countries to identify trends, both negative and positive.

 


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