Question

Briefly state the structure of the balance of payments.

Answer 1

1. Current account: It includes all current transactions related to the export and import of goods and services. The trade of physical goods is referred to as visible items, while invisible items cover services like shipping, banking, insurance, government spending, interest, investment profits, as well as gifts and grants.
   Balance of Payments on Current Account = (Visible + Invisible exports) = (Visible + Invisible imports)
2. Capital account: When the current account does not balance the balance of payments, the capital account is used to make up the difference. It covers both short-term and long-term international borrowing and lending. Additionally, any transactions involving gold are also included in the capital account. 
3. Overall balance of payments: The overall balance of payments reflects the combined total of a country's current account and capital account. Any deficit or surplus in the current account is offset by the capital account, and similarly, any imbalance in the capital account is balanced by the current account.