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BOPs - introduction

S:\triplea_resources\DP_topic_packs\economics\student_topic_packs\media_microeconomics\images\scale_1.jpgSyllabus: Outline the role of the balance of payments.

Definition: The Balance of Payments (BoP) is a record (account) of all currency flows into and out of an economy: It lists the reasons and amounts of these flows.

The balance of payments accounts record the financial flows between a country and the rest of the world. These flows result from trade, international investments, international borrowing and loan repayments.

This is really important to understand:
Overall, the balance of payments accounts will always balance, although there may be deficits or surpluses on the various sections within the overall accounts. If there is a deficit in the trade of goods and services recorded in the current account, this will then be paid for by an inflow of funds recorded in the financial account (for example)

On the following pages, we consider the following topics in detail:

  • Current account
  • Capital account
  • Financial account