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Economics explained


Balance of payments

The balance of payments

The balance of payments

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A country’s balance of payments is a record of all the economic transactions between residents of that country and residents in other countries.

Money coming into the country creates credit items, which have a positive sign.

Money going out of the country gives rise to debit items which have a negative sign.

The components of the balance of payments are

The current account

The capital account

The financial account

Equilibrium in the balance of payments

A balance of payments is in equilibrium if, over a period of years, the exchange rate remains stable and autonomous credits and debits are equal in value (the annual trade in goods and services is in overall balance).

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