1. Country’s Balance of Payments (BoP). A Country’s Balance of Payments can be defined as the stream of payments among any single country with the rest of the countries. It is the relationship between any country’s domestic payments and debts which she owes to the foreign countries and the amount which it has to receive from the foreign countries in the shape of receipts and credits for a specified period of time which is generally calculated as one year.
There are three components which form part of the balance of payments and these are current account, capital account and the official reserve account. For the calculation of the balance of payment, if a country has received money, this is known as a credit and if a country has paid or given money, the transaction is counted as a debit. Thus we can say that, the imports are considered as a debit item and the exports are termed as a credit item.
Balance of Payments of a country = Current Account Balance + Capital Account Balance + Official Reserve Account Balance
Ideally, for a country, the balance of payments should be zero depicting a balance in assets and liabilities. This is normally not observed, thus the country’s deficit or surplus can paint a picture for the trader or observer of the economy of the country.
2. Country’s Current Account. The current account of the country is calculated as the current income from investments and the trade transactions. It also includes the unilateral transfers. Current account consists of income generated by trading, merchandise and services, foreign aid, foreign stocks, bonds and real estate.
3. Country’s Capital Account. The capital account is measured by all international capital transfers. This refers to a country’s transactions outside the country from the sale of real and financial assets. It also includes the extension of loans. The capital account is sub-divided into different sub-categories like monetary flows from debt pardon, the transfer of goods, financial assets of migrants entering or exiting the country, etc.
We recommend trading forex with Easy-Forex.
