Theory question 110
Balance of Payments and Exchange RatesSection B: answer three questions only from this section.
(a) Define the term Balance of Payments (b) What are its main components?
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(a) The balance of payments is a systematic record of all economic transactions between residents of a country and the rest of the world over a period, usually one year
(b) Current account: visible trade (exports and imports of goods, the balance of trade) and invisible items (services such as shipping, insurance, tourism, interest, dividends and transfers)
Capital account: long-term and short-term capital movements, e.g. foreign investment, loans and repayments
Official settlements (monetary movements) account: changes in foreign reserves, borrowing from the IMF, used to settle the overall balance
Define it, then explain the current, capital and monetary accounts.