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Balance of Payments

Definition

The balance of payments accounts measure the economic transactions between a country and the rest of the world over a specific period, typically a year. It consists of three main components: the current account, capital account, and financial account.

Analogy

Imagine you have a personal bank statement that tracks all your income and expenses. The balance of payments is like a country's "bank statement" that keeps track of all its economic interactions with other countries.

Related terms

Current Account: This term refers to the part of the balance of payments that records transactions related to trade in goods and services, as well as income from investments.

Capital Account: This term refers to the part of the balance of payments that records transfers of ownership or rights to non-financial assets, such as land or patents.

Financial Account: This term refers to the part of the balance of payments that records transactions involving financial assets, such as stocks, bonds, and foreign direct investment.