Balance of payments?

Question

Is the inflow of money the current account and the outflow of money capital account?

Answer 1

In economics, the balance of payments, (or BOP) measures the payments that flow between any individual country and all other countries. It is used to summarize all international economic transactions for that country during a specific time period, usually a year. The BOP is determined by the country's exports and imports of goods, services, and financial capital, as well as financial transfers. It reflects all payments and liabilities to foreigners (debits) and all payments and obligations received from foreigners (credits). Balance of payments is one of the major indicators of a country's status in international trade, with net capital outflow.

The balance, like other accounting statements, is prepared in a single currency, usually the domestic. Foreign assets and flows are valued at the exchange rate of the time of transaction.

The income account accounts mostly for investment income from dividends and interest on credit and payments on foreign taxes.

Strangely, the net of the income account of the United States has been negligible as a percentage of total debits or credits for decades, an extremely outlying instance.

According to the IMF's definition, the capital account "records the international flows of transfer payments relating to capital items". It therefore records a country's inflows and outflows of payments and transfer of ownership of fixed assets (capital goods). Examples of such goods could be factories or heavy machinery transferred to or from abroad and so on. Summing up: the capital account accounts for the transfer of capital goods. (source: see book reference list)

In economics, the term capital account usually refers to what the IMF calls the financial account and capital account, combined.

Answer 2

Basically BOP is the accounting balance sheet at the government level, it contains 3 major different categories, 1- Current accounts, which keeps the records of Imports, Exports and Net flow of Income in and out of the economy. 2- Capital accounts which keep the records of all Investment activities, such as Investment in the Real sector, Portfolio investment and Foreign direct investment . 3- Financial account which is kept at Central Bank level , this account keeps all the records of IMF (International Monetary Fund) accounts, Gold Blocks (Kept by treasury as monetary base) and Currencies.

Now if these three major accounts together after offsetting effects they may have on each other create a balance , all the payments will be in balance , and normally the interaction between these accounts contains some stablising outcomes which at the end of the day may lead to over all balance.