Balance of Payments
It shows all the payments and receipts between one country and all the other countries it trades with.Balance of Payment is classified into three categories. These are:
The current account
- All the visible and invisible trade of the country
- Wages received by countries citizens working outside in other countries or paid to foreign workers working in the country.
- Interest payments, profits and dividends on shares
- Taxes received and paid by the government from foreign sources.
The Capital account
It includes flow of money in and out of the country because of:
- Change of ownership of fixed assets
- Sale of fixed assets
The financial account
It records the flow of money in and out of a country because of:
- Investment in capital, shares and loans.
- Direct inward investment.
- Portfolio investments
Balance of Payment can be favourable or unfavourable (deficit).