Balance Of Payments

Definition of 'Balance Of Payments - BOP' A

record of all transactions made between one
particular country and all other countries
during a specified period of time. BOP
compares the difference of the amount of
exports and imports, including all financial
exports and imports. A negative balance of
payments means that more money is flowing
out of the country than coming in, and vice
versa.
Balance of payments may be used as an
indicator of economic and political stability.
For example, if a country has a consistently
positive BOP, this could mean that there is
significant foreign investment within that
country. It may also mean that the country
does not export much of its currency.
When talking about the BoP - you need to
understand current account and the capital
account.
Current Account
The current account shows you the trade position
of the country. It shows you the merchandise
imports and exports, and then the invisibles part
of it is also trade but it's that part of trade where
there is no physical good exported or imported.

Capital Account
Where current account shows the trade,
capital account can be thought of as the
investments part of the international
transactions.
This is further broken out into equity and
debt investment and t FDI money is part of
the equity investments while the external
commercial borrowings, money deposited in
banks by NRIs and trade credits and debt
investments.