Question

Define Balance of Payments (BoP) Account.

Hint:

Recall the three parts of the definition: a record of transactions in goods, services and assets, between residents and the rest of the world, for a stated period (usually a year).

Answer 1

Step 1: Understanding the Concept:
A country trades with the rest of the world in goods, services and assets. The Balance of Payments (BoP) account is the record book of all such dealings.

Step 2: Key points of the definition:
1. It records transactions between the residents of a country and the rest of the world.
2. The transactions cover goods, services and assets (financial assets such as loans and investments).
3. The record is kept for a stated period, usually one year.

Step 3: Detailed Explanation:
Take an Indian firm that sells software to a firm in the USA. This is a service export and goes into the BoP account of India.
In the same way, India buying crude oil from abroad is an import of goods and also goes into the account.
Dealings between two Indian residents are not recorded, because both sides are residents.

Final Answer:
The Balance of Payments (BoP) account is a systematic record of all economic transactions in goods, services and assets between the residents of a country and the rest of the world during a given period, usually one year.