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Balance of Payments

It shows all the payments and receipts between one country and all the other countries it trades with. Balance of Payment is classified into three categories. These are:

The current account

It includes

  • All the visible and invisible trade of the country
  • Wages received by countries citizens working outside in other countries or paid to foreign workers working in the country.
  • Interest payments, profits and dividends on shares
  • Taxes received and paid by the government from foreign sources.

The Capital account

It includes flow of money in and out of the country because of:

  • Change of ownership of fixed assets
  • Sale of fixed assets

The financial account

It records the flow of money in and out of a country because of:

  • Investment in capital, shares and loans.

  • Direct inward investment.

  • Portfolio investments

Balance of Payment can be favourable or unfavourable (deficit).

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