Economic Policies and Tools
Balance of PaymentsThe balance of payments of a country is a systematic record of all economic transactions between the residents of the reporting country and the residents of foreign countries during a given period of time. It is an important index, which reflects the true economic position of a country, whether the country is a creditor country or a debtor country, and whether its currency is rising or falling in its external value. There are various types of monetary transactions that take place between two countries:
The items in the table are self-explanatory. One can see that the current account consists of visible exports and imports. The visible exports and imports are those, which are actually recorded at the ports.
The following table shows the components of the capital account.
The above items are self-explanatory. The capital account reflects the real monetary position of a country in the international capital market.
Changes in the balance of payments produce deep repercussions on the functioning of the economy. A ï¿½surplusï¿½ in the balance of payment generally means an inflow of income into the country, more economic activity and more employment for the people. A deficit in the balance of payments, on the contrary, implies and outflow of income abroad, less of economic activity and less of employment at home.