Balance of Payments (BoP)
The BoP is a summary statement in which, in principle, all the transactions of the residents of a nation with the residents of all other nations are recorded during a particular period of time, usually a calendar year. These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers. The BoP accounts summarize international transactions for a specific period, usually a year, and are prepared in a single currency, typically the domestic currency for the country concerned. Sources of funds for a nation, such as exports or the receipts of loans and investments, are recorded as positive or surplus items. Uses of funds, such as for imports or to invest in foreign countries, are recorded as negative or deficit items. The main purpose of BoP is to inform the government of the international position of the nation and to help it in its formulation of monetary, fiscal, and trade policies. Governments also regularly consult the balance of payments of important trade partners in making policy decisions. Moreover, the information contained in a nation's balance of payments is also indispensable to banks, firms, and individuals directly or indirectly involved in international trade and finance. The balance of payments accounts can be presented in ledger form with two columns. One column is used to record credit entries. The second column is used to record debit entries. Credit transactions are those that involve the receipt of payments from foreigners and are entered with a positive sign (+) in the nation's balance of payments. Debit transactions are those that involve the making of payments to foreigners and are entered with a negative sign (-) in the nation's balance of payments. The two principal parts of the BOP accounts are the current account and the capital account. The current account shows the net amount a country is earning if it is in surplus, or spending if it is in...
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