Balance of payments (BOP) accounts are an accounting record of all monetary transactions between a country and the rest

of the world.[1]These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers. The Bo accounts summari!e international transactions for a specific period, usually a year, and are prepared in a single currency, typically the domestic currency for the country concerned. "ources of funds for a nation, such as exports or the receipts of loans and investments, are recorded as positive or surplus items. #ses of funds, such as for imports or to invest in foreign countries, are recorded as negative or deficit items. The two principal parts of the B$ accounts are the current account and the capital account. The current account shows the net amount a country is earning if it is in surplus, or spending if it is in deficit. %t is the sum of the balance of trade &net earnings on exports minus payments for imports', factor income &earnings on foreign investments minus payments made to foreign investors' and cash transfers. %t is called the current account as it covers transactions in the (here and now( ) those that don't give rise to future claims. [*]

The capital account records the net change in ownership of foreign assets. %t includes the reserve account &the foreign exchange mar+et operations of a nation's central ban+', along with loans and investments between the country and the rest of world &but not the future regular repayments,dividends that the loans and

investments yield- those are earnings and will be recorded in the current account'. The term (capital account( is also used in the narrower sense that excludes central ban+ foreign exchange mar+et operations. "ometimes the reserve account is classified as (below the line( and so not reported as part of the capital account

The balance of payments &B$ ' is the method countries use to monitor all international monetary transactions at a specific period of time. #sually, the B$ is calculated every /uarter and every calendar year. 0ll trades conducted by both the private and public sectors are accounted for in the B$ in order to determine how much money is going in and out of a country. %f a country has received money, this is +nown as a credit, and, if a country has paid or given money, the transaction is counted as a debit. Theoretically, the B$ should be !ero, meaning that assets &credits' and liabilities &debits' should balance. But in practice this is rarely the case and, thus, the B$ can tell the observer if a country has a deficit or a surplus and from which part of the economy the discrepancies are stemming. The Balance of Payments Divided The B$ is divided into three main categories. the current account, the capital account and the financial account. 1ithin these three categories are sub)divisions, each of which accounts for a different type of international monetary transaction.

The Current Account The current account is used to mar+ the inflow and outflow of goods and services into a country. 2arnings on investments, both public and private, are also put into the current account. 1ithin the current account are credits and debits on the trade of merchandise, which includes goods such as raw materials and manufactured goods that are bought, sold or given away &possibly in the form of aid'. "ervices refer to receipts from tourism, transportation &li+e the levy that must be paid in 2gypt when a ship passes through the "ue! 3anal', engineering, business service fees &from lawyers or management consulting, for example', and royalties from patents and copyrights. 1hen combined, goods and services together ma+e up a country's balance of trade &B$T'. The B$T is typically the biggest bul+ of a country's balance of payments as it ma+es up total imports and exports. %f a country has a balance of trade deficit, it imports more than it exports, and if it has a balance of trade surplus, it exports more than it imports. 4eceipts from income)generating assets such as stoc+s &in the form of dividends' are also recorded in the current account. The last component of the current account is unilateral transfers. These are credits that are mostly wor+er's remittances, which are salaries sent bac+ into the home country of a national wor+ing abroad, as well as foreign aid that is directly received. The Capital Account The capital account is where all international capital transfers are

recorded. This refers to the ac/uisition or disposal of non)financial assets &for example, a physical asset such as land' and non) produced assets, which are needed for production but have not been produced, li+e a mine used for the extraction of diamonds. The capital account is bro+en down into the monetary flows branching from debt forgiveness, the transfer of goods, and financial assets by migrants leaving or entering a country, the transfer of o nership on fi!ed assets &assets such as e"uipment used in the production process to generate income', the transfer of funds received to the sale or ac"uisition of fi!ed assets, gift and inheritance ta!es, death levies, and, finally, uninsured damage to fi!ed assets# The $inancial Account %n the financial account, international monetary flows related to investment in business, real estate, bonds and stoc%s are documented# 0lso included are government)owned assets such as foreign reserves, gold, special dra ing rights (&D's) held ith the (nternational )onetary $und, private assets held abroad, and direct foreign investment# Assets o ned by foreigners, private and official, are also recorded in the financial account# The Balancing Act The current account should be balanced against the combined) capital and financial accounts. 5owever, as mentioned above, this

rarely happens. 1e should also note that, with fluctuating exchange rates, the change in the value of money can add to B$ discrepancies. 1hen there is a deficit in the current account, which is a balance of trade deficit, the difference can be borrowed or funded by the capital account. %f a country has a fixed asset abroad, this borrowed amount is mar+ed as a capital account outflow. 5owever, the sale of that fixed asset would be considered a current account inflow &earnings from investments'. The current account deficit would thus be funded. 1hen a country has a current account deficit that is financed by the capital account, the country is actually foregoing capital assets for more goods and services. %f a country is borrowing money to fund its current account deficit, this would appear as an inflow of foreign capital in the B$ . *iberali+ing the Accounts The rise of global financial transactions and trade in the late)*6th century spurred B$ and macroeconomic liberali!ation in many developing nations. 1ith the advent of the emerging mar+et economic boom ) in which capital flows into these mar+ets tripled from #"7 86 million to #"7 186 million from the late 19:6s until the 0sian crisis ) developing countries were urged to lift restrictions on capital and financial)account transactions in order to ta+e advantage of these capital inflows. ;any of these countries had restrictive macroeconomic policies, by which regulations prevented foreign ownership of financial and non)financial assets. The regulations also limited the transfer of funds abroad. But with capital and financial account liberali!ation, capital mar+ets began

to grow, not only allowing a more transparent and sophisticated mar+et for investors, but also giving rise to foreign direct investment. <or example, investments in the form of a new power station would bring a country greater exposure to new technologies and efficiency, eventually increasing the nation's overall gross domestic product by allowing for greater volumes of production. =iberali!ation can also facilitate less ris+ by allowing greater diversification in various mar+ets 4ead more. http.,,www.investopedia.com,articles,6>,6?6@6>.aspAix!!1+ p>%l<>6