Business Glossary

record of the transactions of a country with the rest of the world. There are three main accounts in the balance of payments: (1) the current account, (2) the capital account, and (3) gold. The current account records trade in goods and services, as well as transfer payments. Services include freight, royalty payments, and interest payments. Transfer payments consist of remittances, gifts, and grants. The balance of tradesimply records trade in goods. The capital account records purchases and sales of investments, such as stocks, bonds and land.

system of recording all of a country's economic transactions with the rest of the world during a particular time period. Double-entry bookkeeping is used, and there can be no surplus or deficit on the overall balance of payments. The balance of payments is typically divided into three accounts-current, capital, and gold-and these can show a surplus or deficit. The current account covers imports and exports of goods and services; the capital account covers movements of investments; and the gold account covers gold movements. The balance of payments helps a country evaluate its competitive strengths and weaknesses and forecast the strength of its currency. From the standpoint of a national economy, a surplus on a part of the balance of payments is not necessarily good, nor is a deficit necessarily bad; the state of the national economy and the manner of financing the deficit are important considerations.

accounting of a country's economic transactions with foreign countries in a stated period of time, normally one year. The balance of payments for any country is divided into two broad categories: the current account , representing import and export trade, plus income from tourism, profits earned overseas, and interest payments; and the capital account, representing the sum of bank deposits, investments by private investors, and debt securities sold by a central bank or official government agencies.

In economic terms, a balance of payments surplus means a nation has more funds from trade and investments coming in than it pays out to other countries, resulting in an appreciation in the value of its national currency versus currencies of other nations. A deficit in the balance of payments has the opposite effect: an excess of imports over exports, a dependence on foreign investors, and an overvalued currency. Countries experiencing a payments deficit must make up the difference by exporting gold or hard currency reserves, such as the U.S. dollar, that are accepted currencies for settlement of international debts.

system of recording all of a country's economic transactions with the rest of the world during a particular time period. The balance of payments is typically divided into three accounts-current, capital, and official reserves-and these can show a surplus or a deficit. There can be no surplus or deficit on the overall balance of payments.