a) Components of the balance of payments

• What are the two main sections of the Balance of Payments (BoP)?

  • The current account: transactions related to goods/services and income transfers
  • The financial and capital account: transactions related to savings, investment, and currency stabilization
• What does the Balance of Payments (BoP) record for a country?

  All financial transactions between the country and the rest of the world
• What does the current account of the BoP include?

  All transactions related to goods/services and income transfers
• What does the financial and capital account of the BoP include?

  All transactions related to savings, investment, and currency stabilization
• How is money flowing into the country recorded in the BoP?

  As a credit (+)
• How is money flowing out of the country recorded in the BoP?

  As a debit (-)
• What is the significance of recording transactions as credits and debits in the BoP?

  It helps to track the flow of money in and out of the country