Question

State the items included in the balance of payments of a country.

State the items included in (components of) the balance of payments.

Answer 1

1. Current Account: All international economic transactions involving the import and export of commodities and services, unilateral transfers, and foreign incomes are documented in the current account. Therefore, after accounting for net transfers and foreign incomes, the current account balance is equal to the value of exports less the value of imports. Transactions in current accounts are flow-oriented.
2. Capital Account: All foreign economic transactions involving changes in financial and physical assets are documented in the capital account. It serves as a record of both public and private capital transactions, both short- and long-term. Transactions involving capital accounts alter the nation’s capital stock. The majority of them are of a stock nature.

Answer 2

The key components of the balance of payments are:

1. Trade in goods, including exports and imports.
2. Trade in services involves the export and import of services.
3. Unilateral transfers, such as receipts and payments without a return service (like remittances or aid).
4. Factor income, which includes earnings and payments for labor and capital, such as wages and returns on investments.
5. International capital transactions cover the movement of capital through borrowing, lending, and the buying or selling of foreign assets.