The balance of payments, or BOP, is a country’s record of all transactions between two nations. It is kind of like your register that shows all the inflows and outflows of your money! It measures how much money is going in and out of a country.
These transactions include payments for services and the country’s exports and imports of goods, financial capital, and financial transfers. The current and financial accounts often referred to as the capital accounts, constitute a country’s balance of payments. Much like your online bank account or checkbook gives you a snapshot of your financial situation, these accounts help tell a story about the state of an economy and its outlook.
Structure of Balance of Payments
As mentioned above, the balance of payments is generally divided into the current and financial accounts.