What is Balance of Payment?

The BOP is the documentation of all international trade and financial undertakings
made by a nation’s citizens. A nation’s Balance of Payment
(https://byjus.com/commerce/balance-of-payment/) tells you whether it saves
sufficient to pay for its imports. It also discloses whether the nation
manufactures enough economic output to pay for its growth. The Balance of Payment
is reported once in a quarter or a year.
The actuality of international payments is that just like an individual who expends
more than their earning must finance the distinction by selling assets or by
borrowing, a nation that has a shortfall in its current account (expending more
than it receives from sales to the rest of the world) must finance it by selling
assets or by borrowing abroad. Hence, any current account shortfall or deficit must
be financed by a capital account surplus, i.e, a net capital inflow:
current account + capital account = 0
What is Balance of Payments Surplus?
The account by which the money coming into a nation is more than the money going
out in a particular time frame.
What is Balance of Payments Deficit?
A balance of payments deficit means the nation imports more commodities, capital
and services than it exports. It must take from other nations to pay for their
imports.
The nation could use its reserves of foreign exchange in order to balance any
shortfall in its BoP:
• When the foreign exchange is being sold by the reserve bank when there
is a deficit, it is known as official reserve sale.
• The decrease or increase in official reserves is known as the overall
balance of payments deficit or surplus.
• The fundamental hypothesis is that the monetary authorities are the
final financiers of any deficit in the BoP(or the recipients of any surplus.
• Official reserve transactions are relevant under the reign of the fixed
exchan
ge rates than when exchange rates are floating.