Balance of Payment: The balance of payment shows the summary of transaction of between the domestic business and the international business.
This statement has two components:
- Current account
- Capital account
Current account: It
shows the summary of flow of funds generated from purchasing and selling of goods and services
and also shows the provision of income generated from investments
Example: Dividend on shares
Capital account: It shows the summary of flow of funds generated by investing in real assets.
.
Example: Branch open other country
Current account components: The following are the components of current account
- Balance of Trade
- Factor Income
- Transfer Payments
Balance of Trade:
In this account selling and purchasing import and export data will record.
Example: Services of doctor.teacher etc.
Factor Income:
It shows dividend and interest received or payed
Transfer Payments:
It shows the information about the aids and grants received or paid
Capital Account Components:
The following are the components of capital account
- Direct Foreign Investment
- Portfolio Investment
- Other Capital Investment
Direct Foreign Investment:
It shows the direct foreign investment in real assets.
Portfolio Investment:
It shows the information about the long term securities
Examples: Share and Bonds etc.
Other Capital Investment:
It shows the investment in short term securities.
Example: T Bill ,Commercial paper etc.
