What are the components of current and capital account in bop?
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*Current account
The four major components of current account are as follows:
1) Visible trade – This is the net of export and imports of goods (visible items). The balance of this visible trade is known as the trade balance. There is a trade deficit when imports are higher than exports and a trade surplus when exports are higher than imports.
2) Invisible trade – This is the net of exports and imports of services (invisible items). Transactions mainly constitute of shipping, IT, banking and insurance services.
3) Unilateral transfers to and from abroad – These refer to payments that are not factor payments. These are ‘one-way’ transactions. For examples, gifts or donations sent to the resident of a country by a non-resident relative.
4) Income receipts and payments – These include factor payments and receipts. These are generally rent on the property, interest on capital and profits on investments.
*Capital Account
The capital account is used to finance the deficit in the current account or absorb the surplus in the current account. The three major components of capital account:
1) Loans to and borrowings from abroad – These consist of all loans and borrowings given to or received from abroad. It includes both private sector loans as well as the public sector loans.
2) Investments to/from abroad – These are investments made by nonresidents in shares in the home country or investment in real estate in any other country.
3) Changes in foreign exchange reserves – Foreign exchange reserves are maintained by the central bank to control the exchange rate and ultimately balance the BOP if it is not.
Current account deficit is financed by a surplus in the capital account and vice versa. This can be done by borrowing more money from abroad or lending more money to non-residents.
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*Current account
The four major components of current account are as follows:
1) Visible trade – This is the net of export and imports of goods (visible items). The balance of this visible trade is known as the trade balance. There is a trade deficit when imports are higher than exports and a trade surplus when exports are higher than imports.
2) Invisible trade – This is the net of exports and imports of services (invisible items). Transactions mainly constitute of shipping, IT, banking and insurance services.
3) Unilateral transfers to and from abroad – These refer to payments that are not factor payments. These are ‘one-way’ transactions. For examples, gifts or donations sent to the resident of a country by a non-resident relative.
4) Income receipts and payments – These include factor payments and receipts. These are generally rent on the property, interest on capital and profits on investments.
*Capital Account
The capital account is used to finance the deficit in the current account or absorb the surplus in the current account. The three major components of capital account:
1) Loans to and borrowings from abroad – These consist of all loans and borrowings given to or received from abroad. It includes both private sector loans as well as the public sector loans.
2) Investments to/from abroad – These are investments made by nonresidents in shares in the home country or investment in real estate in any other country.
3) Changes in foreign exchange reserves – Foreign exchange reserves are maintained by the central bank to control the exchange rate and ultimately balance the BOP if it is not.
Current account deficit is financed by a surplus in the capital account and vice versa. This can be done by borrowing more money from abroad or lending more money to non-residents.
Hope this helps you 99%
Please mark as brainlist ^_^
Strawberry371:
If this keeps you then please mark as brainlist otherwise no need
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