Notes for 4.6.1 Balance of payments - IB | RevisionDojo
4.6.1 Balance of payments Notes
Definition
Balance of Payments
A statement or record of a country'seconomictransactions with the all other countries over a specific timeperiod (often a year).
Credit and Debit Items in the Balance of Payments
Credits: Money Inflows
Credits represent payments received bythe economy from others.
These include but are not limited to:
Exports of goods and services: Payments received for selling products abroad.
Foreign investments: Money from foreign investors buying domestic assets.
Income from abroad: Earnings from overseas investments or wages.
Debit Items: Money Outflows
Debits represent payments made from the economy to others.
These include but are not limited to:
Imports of goods and services: Payments made for purchasing foreign products.
Investments abroad: Money spent by domestic investors on foreign assets.
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Questions
Recap questions
1 of 5
Question 1
Recap question
Why do credit entries in the balance of payments lead to increased demand for the domestic currency in the foreign exchange market?
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Note
The Balance of Payments (BoP) is a comprehensive record of a country's economic transactions with the rest of the world over a specific period, usually a year. It includes all financial exchanges between residents of the country and foreign entities.
The BoP is divided into three main accounts:
Current Account
Capital Account
Financial Account
DefinitionBalance of PaymentsA systematic record of all economic transactions between residents of a country and the rest of the world over a specific period.
AnalogyThink of the Balance of Payments like a checkbook for a country, where every dollar coming in or going out is recorded.
