Concept of Balance of Payments for Banking & SSC

Balance of Payments for Banking – Introduction

Balance of payments is an overall statement of a country’s economic transactions with the rest of the world over some period – usually 1 year. It includes all outflows and inflows (payments and receipts). Countries have either balance of payment surplus or a balance of payment deficit.

Balance of Payment for Banking is a way of listing receipts and payments in international transactions of a country.

Importance of Balance of Payments

A country has to deal with other countries in respect of the following:

1. Visible items: which include all types of physical goods exported and imported.
2. Invisible items: which include all those services whose export and import are not visible e.g. transport services, medical services, etc.
3. Capital transfers: which are concerned with capital receipts and capital payments.

In order to acquire these goods, a country will accommodate some capital deficit and this is called Balance of Payments.

Types of Balance of Payments

Balance of Payment can be broken down into:

1. The Balance of Trade (export and import of goods)
2. A Balance of Current Account (includes the balance of trade, the balance of services and remittances)
3. Capital Account (investment and borrowing): The capital account of a country consists of its transaction in financial assets in the form of short-term and long-term lending and borrowing
4.