Balance of Payments in Economics

Topics: International economics, International trade, Investment Pages: 3 (698 words) Published: November 2, 2011

Balance of payments can be defined as the measurement of the payments that flow between any individual country and all other countries. It is used to summarize all international economic transactions for that country during a specific period of time, usually one year. The balance of payment is determined by the country's exports and imports of goods, services, and financial capital, as well as financial transfers. It reflects all payments and liabilities to foreigners (debits) and all payments and obligations received from foreigners (credits). Balance of payments is one of the major indicators of a country's status in international trade, with net capital outflow. The balance of payments of a country is also said to be in equilibrium that is, when the demand for foreign exchange is exactly equivalent to the supply of it. On the other hand balance of payments is in disequilibrium when there is either a surplus or a deficit in the balance of payments. When there is a deficit in the balance of payments, the demand for foreign exchange exceeds the demand for it.

Current accounts on the balance of payments are recorded transactions arising from trade in goods and services, from income owing to residents of one country to residents of another. The current account is split in to several components, some on which includes the visible trade and invisible trade accounts.

Visible accounts also know as trade in goods records those tangible goods being imported and exported into and out of a country these goods include raw materials such as copper and oil (imports) and cars (exports).

On the other hand Invisible accounts also know as trade in services are usually said to be intangible services being bought by foreigners, these include records of financial services by banks, insurance agencies and firms , transport services such as shipping and air travel and also tourism.

The Capital and Financial accounts is a major component in...
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