1. What is meant by the balance of payments?

In what way is the balance of

payments a summary statement? What is meant by an international transaction?
How is a resident of a nation defined? In what way is the time element involved in
measuring a nation’s balance of payments?
The balance of payments is a summary statement of all the transactions of the residents
of a nation with the rest of the world during a particular period of time, usually a year. Its
main purpose is to inform monetary authorities of the international position of the nation
and to aid banks, firms, and individuals engaged in international trade and finance in
their business decisions.
International transactions are classified as credits or debits. Credit transactions are
those that involve the receipt of payments from foreigners. Debit transactions are those
that involve payments to foreigners. The export of goods and services, unilateral
transfers from foreigners, and capital and financial inflows are credits and are entered
with a positive sign. The import of goods and services, unilateral transfers to foreigners,
and capital and financial outflows are debits and are entered with a negative sign. In a
nation’s balance of payments, each transaction is recorded twice, once as a credit and
once as a debit of an equal amount. This is known as double-entry bookkeeping. This
ensures that total credits equal the total debits (including the statistical discrepancy) for
the balance of payments statement as a whole.

2. What international transactions are included in the current account? What

does the capital account include? What are the credit and the debit transactions
in the current and capital accounts? What is meant by net lending and net
borrowing in the current and capital accounts?
The current account represents a country's imports and exports of goods and services,
payments made to foreign investors, and transfers such as foreign aid. ... A country's
current account balance, whether positive or negative, will be equal but opposite to its
capital account balance.
The capital account is a record of the inflows and outflows of capital that directly affect a
nation's foreign assets and liabilities. ... The components of the capital account include
foreign investment and loans, banking and other forms of capital, as well as monetary
movements or changes in the foreign exchange reserve.
- Credit (CR.) - exports of goods and services, income receivable, reduction in
assets, or increase in liabilities.
- Debit (DR.) - imports of goods and services, income payable, increase in assets,
or reduction in liabilities.
Net lending/borrowing of a country corresponds to the sum of total current and capital
accounts' balances in balance of payments. It represents the net resources that the total
economy makes available to the rest of the world (if it is positive) or receives from the
rest of the world (if it is negative).

3. What international transactions are included in financial account? What is

meant by the net acquisition of financial assets? The net incurrence of liabilities?
Net lending and net borrowing from financial account transactions?
Financial account records all international purchases or sales of financial assets. It
includes the net acquisitions of financial assets, the net incurrence of foreign liabilities,
and net financial derivative transactions.
Net acquisition of financial assets is net amount of financial assets acquired during a
specific period of time. It includes direct investment and portfolio investment assets, as
well as other investment assets, and official reserve assets.
Net incurrence of liabilities includes direct and portfolio investment liabilities, and other
investment liabilities.
Net lending from financial account transactions occurs when the nations net acquisitions
of financial assets exceeds the nations net incurrence of liabilities.
Net borrowing from financial account transactions occurs when the nations net
incurrence of liabilities exceeds the nations net acquisitions of financial assets.