What r the components of BOP?
Every country indulges itself in economic transactions with other countries. In this process, it receives or makes payment from and to other countries. The statement that keeps the record of all these economic transactions of a country with the rest of the world is known as Balance of Payment (BoP). BoP accounts consists of the following accounts.
Current Account
Capital Account
Current Account
Current Account is the account which maintains the records of imports and exports of goods and services as well as unilateral transfers. It includes
Export and Import of goods (tangibles)
- Export and Import of services (intangibles)
Unilateral Transfers ( one sided transactions from one country to another such as, gifts, donations, etc.)
Capital Account
Capital Account refers to that account that records all the transactions which causes change in assets or liabilities of the government or of the domestic residents. The following are the various component of capital account.
Foreign Direct Investments (FDI): It refers to the long run investment in capital such as, purchase of a building or plant. For example, purchase of a foreign company by an Indian business group in America.
Portfolio Investments: The purchase of an asset in rest of world, in the form of long term investment, without legal ownership or control over that asset is called as Portfolio Investment. For example, purchase of shares of a company in abroad.
Other investments include loans and capital flows into bank accounts.