Balance of Payments Definition: Balance of Payments records a country’s value of the transactions between its residents, businesses, and government with the rest of the world for a specific period of time. BOP provides useful information about international flows.
To put it another way, BOP represents an economy’s economic exchanges with the rest of the globe. These exchanges involve transfer payments as well as the export and import of products, services, and financial assets.
It reports the country’s international performance in trading with other nations. BOP considers as a list of items behind the supply and demand for a currency.
Major Accounts of Balance of Payment
There are three major BOP accounts:
- Current account
- Capital and Financial account
- Official reserves account
Balance of Payments Formula
The current account, capital account, and finance account balances are added together to form the formula for the balance of payments.
Balance of payments = balance of the current account + balance of the capital account + balance of the financial account
For additional information on this topic, see the article below.
