Balance of Payments Accounts is a record of all economic transactions between residents of one country and residents of foreign countries during a specific period. It consists of three main components - current account, capital account, and financial account.
Imagine your personal bank statement that tracks all your income, expenses, loans, and investments. Similarly, balance of payments accounts keep track of all the money flowing into or out of a country from trade activities with other nations.
Current Account Deficit/Surplus: A deficit occurs when a country's imports exceed its exports in value; surplus occurs when exports exceed imports.
Capital Account Transactions: Records financial flows related to non-produced/non-financial assets like land purchases or debt forgiveness.
Financial Account Transactions: Tracks changes in ownership interest involving financial assets such as stocks, bonds, or direct investment abroad.
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