Question

What information is included in the balance-of-payments accounts of a nation? Why are these accounts important? Will the balance-of-payments accounts of a country always be in balance? Will the balance of trade always be in balance?

Answer 1

Balance of payments account is a statement or monetary record of all the transactions made by country's residents and the rest of the world.

BOP has three components-

1. Current account- It measures international trade of goods and services (export and import).

2. Capital account- It measures international capital transactions (Non financial and non produced assets).

3.Financial account- It measures the change in international ownership of assets.

BOP account is important as it tells us whether the country produces enough to fund for is economic growth. Whether the country saves enough to pay for it's importa or does it have to borrow from rest of the world.

BOP account deficit means imports are more than exports. So the country must borrow to pay for it's imports.

BOP surplus means exports are more than imports. The country may lend to other nations.

Yes the BOP accounts will always be in balance because it is based on the system of double entry book keeping. Every debit entry has an offsetting credit entry and vice versa.

So the total receipts and total payments must always balance.