Balance Of Payments Accounts

Wednesday, September 30, 2009

A country’s balanace of payment accounts record its international trading, borrowing, and lending. There are in fact three balance of payment accounts:

1. Current Account

2. Capital Account

3. Official settelements accounts

The Current Account records the reciept from the sale of goods and services to foriegners, the payments for goods and services bought from foriegners, and gifts and other transfers (such as foreign aid payments), received from and paid to foriegners. By far the largest time in current account are the reciept from sale of goods and services to foriegners (the value of exports) and the payments made for goods and services bought from foreigners (the value of imports). Net transfers are relatively small items.

The Capital Account records all the international borrowing and lending transactions. The capital account balance records the difference between the amount that a countrys lends to and borrows from the rest of the world.

The official settelements Account shows the net increase or decrease in a country’s holdings of foreign currency.