Balance of payments - a record of the transactions that a country has with the rest of the world
components of BOP accounts - 1) the current account
-balance of trade:
1. trade in goods-the trade(exports and imports) in visible goods
2. trade in services- the trade in invisble goods
3. income flows-net investment income e.g. profits, interest payments, dividends on shares
4. current transfers: the net transfers of money by governent and individuals e.g. grants for overseas,
migrantworkers' remittances sent back to their own countries
2)the capital account: records capital movements in terms of assets(including physical assets such as
purchase of land) and liabilities(debt forgiveness) into and out of a country
3)the financial account: records capital inflows into a country and the capital outflows out of a country,
resulting from investments(such as building of factories)
*also includes loans and changes in reserves
net errors and omissions - transactions that go unrecorded caused by time delay in reporting the
transactions
balancing items - a positive or negative figure that accounts for any statistical errros in the balance of
payments and ensures that the accounts, when added together, come to zero
BOP deficit - money outflow is greater than money inflow (expenditure exceeds income)
BOP surplus - money inflow is greater than money outflow(income exceeds expenditure)
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