Balance of Payments Accounts (a) Provide the deÖnition of Balance of Payments Accounts (b) Which transactions...

Balance of Payments Accounts (a) Provide the deÖnition of Balance of Payments Accounts (b) Which transactions are recorded in the Current Account and which transactions in the Financial Account? Provide Examples

Expert Solution

Answer

Part a

Balance of payment refers to all the current, financial, and capital transactions occurred between residents and entities of a home country with the rest of the world for a specific period of time.

For example, in the current account of balance of payment, all the exports of services and goods against which home country receives the payment gets credited in the BOP (Balance of payment) whereas, all the imports of the same against which entities make the payment gets debited in BOP.

Part b

Transactions recorded in current account:

Current account includes the direct payments, net income, and balance of trade. Therefore, it includes all the transactions of goods and services, all the transfer payments such as aid and money transfer as gift. Income transfer of domestic resident working in foreign country.

Transactions recorded in Financial account:

Financial account includes transactions related to assets such as gold, shares, bonds etc. Residents of home country invest in foreign financial assets and make sale and purchase of financial assets. When foreign assets gets sold, domestic receive the money which gets credited in Financial account while the payment given in order to purchase the foreign financial assets gets debited in the same.

Rahul Sunny answered 2 years ago

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