Concept Balance of payments - Economist

- "BOP" Refers to balance of payments.

- Bop it is a summary of all economic transactions between the residents of one country and the rest of the world over a given during period of time.

Balance of payments

- Any transactions resulting in a payment of foreigners is entered in the balance of payments accounts as a debit and is given a negative sign.

- Any transactions resulting in a receipts from foreigners is entered as credit and is give a positive sign.

A simplified presentation of the balance of payments appears three majors categories of transaction, each type of transactions within these accounts is registered as a credit or debit and a net balance ( Surplus or Deficit ), can be computed for each type of transaction and each group of transactions.

The balance of payments is double entry book keeping system, this means that any international transaction is entered twice because every transaction has two sides.

The current account divides into two major :

1- Transactions involving currently produced goods and services between residents and the rest of the world.

2- Unilateral transfers.

The capital account includes transactions involving the purchase / Sale of assets between Americans residents and the rest of the world.

The balance of payments must always (balance) in the sense that total credits must equal total debits.

As for an individual, total receipts must equal total payments once changes in asset holdings and cash balances are taken in to account.

This type of balance in the Bop is trivial and arises more from accounting and bookkeeping conventions than from the theory of international trade and finance.

Balance of trade – it refers to the difference between exports of goods and import of goods. It includes the value of tangible goods only.

Balance of trade = Export of goods - Import of goods

Balance of current account –  it refers to measure of all the balance of import and export of goods and services including factor services.

Balance of current account = Balance of trade+ Balance of invisible + Balance of transfers.

Balance of Capital Account – include the balance of capital transfers, borrowing and lending and sale from a purchase of stocks of gold and foreign exchange.