Question

Explain how the balance of payments is balanced？What pays for a current account defeicit or a capital account surplus.

Answer 1

Balance of payment is the method countries used to to monitor all international monetary transactions at a specific period of time. Balance of payment of a country can be defined as a systematic statement of all economic transactions of a country with the rest of the world during a specific period usually 1 year.all trade conducted by both the private and public sectors are accounted for the balance of payment in order to determine how much money is going in and out of country.

Current account deficit capital account surplus with balance of payment:-
Current account surplus:-
Within the current account are credits and debits on the trade of merchandise which includes goods such as raw material and manufactured goods that are bought sold or given away. Current account include export and import of goods and services visible and invisible trade.this type of transaction change is the current level of consumption of the country. Services refer to receive from tourism transportation engineering business service fees and royalties from payments and copyrights. When combined goods and services together make up countries balance of trade.balance of trade is typically the biggest bulk of a country's balance of payments as it makes up total imports and exports.if a country has a balance of trade deficit it imports more than it exports and if it has a balance of trade surplus it exports more than imports.

With capital account surplus:-
the capital account is where all international capital transfers are recorded. This refers to the acquisition or disposal of non financial assets and non produced assets which are needed for production but have not been produced like a mine used for the extension of diamonds. The capital account is broken down into the monetary flows branching from date forgiveness the transfer of goods and financial assets by migrants living are entering a country e the transfer of ownership on fixed assets the transfer of funds received to the sale or acquisition of fixed assets gift and inheritance tax, death levies and finally uninsured damage to fixed assets.