Question

List and describe briefly ALL components of BOP. Provide a hypothetical example of an entry into each of components.

Answer 1

there are three important components of the balance of payments. they are the financial account, the capital account, and the current account.

the financial account is the change in international ownership of assets. the financial account made by both capital and current account. if the foreign ownership is more than domestic ownership then it creates a deficit in this account. for example, the country is selling off its assets like gold, stock, faster than it is acquiring foreign assets.

the capital account is any financial transactions that don't affect economic output. the capital account accounted for financial transactions that don't affect the income, production or saving of the country. for example, it records international transfers of drilling rights, copyrights, and trademarks.

the current account measures international trade, the net income on investment and direct payments. the current account measures direct payment, trade balance plus the effects of net income. for example, to fund all their purchases, business activity and government spendings etc.