Professional Documents
Culture Documents
Balance of Payments
By
Troy Segal
Updated May 17, 2022
Reviewed by
Natalya Yashina
Fact checked by
Yarilet Perez
The balance of payments (BOP) is the record of all international transactions
(payments and receipts) between the individuals and entities (including government)
of one nation and other countries during a specific time period. The current account,
the capital account, and the financial account make up a country's BOP. Together,
these three accounts tell a story about a country's economy, economic outlook, and
strategies for achieving its desired goals.
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A large volume of imports and exports, for example, may indicate an open economy
that supports free trade. On the other hand, a country that shows little international
activity in its capital or financial account may have an underdeveloped capital market
and little foreign currency entering the country in the form of foreign direct
investment (FDI).
A current account records the flow of goods and services in and out of a country,
including tangible goods, service fees, tourism receipts, and money sent directly to
other countries either as official aid or family to family. A financial account measures
the increase or decrease in a country's ownership of international assets. The capital
account measures the capital transfers between U.S. residents and foreign residents.
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In this article, we focus on the capital and financial accounts, which reflect investment
and capital market regulations within a given country.
Key Takeaways