(a) Define the term Balance of Payments. (b) What are its main components?

Explanation

(a) Balance of payments means the relationship between the sum total of a country's payment for her import receipts for her export . It is thus a statement of income and expenditure on international account, for a period of usually one year.

(b) Components of balance of payments are:

(I) Current account:This is made up of the total receipts and payments on both visible and invisible goods e.g. banking, insurance, shipping and tourism. It consists of visible and invisible trade account.

(ii) Capital account:This account is made up of the movement or flow of money from one country to another such as investments, international grants and loans. These are short and long term capital movements. A country's balance of payments is favourable when money received is more than the amount she pays out and vice versa.

(iii) Monetary movement account:This shows how the balance on both current and capital accounts is settled. It shows how the surplus or deficit on both accounts is settled.