Balance of Payment (BOP): It is an account of what is received by residents of a country from the rest of the world and what these residents have paid out to other countries on account of sale of goods, services and other invisible items as well as on account of capital transfers from the other countries. It is divided into two accounts. Current Account: It maintains all the transactions related to the exchange of goods and services and unilateral transfers. It includes shipping insurance and banking services, investment income, foreign travel, transfer payments and balance of trade . Financial Account: It provides details of all the capital transfers such as investment and loans between one country and the rest world. Some components are banking capital, official capital, private capital and gold and foreign capital. Relation between Current Account and Financial Account: In an economy sum of both current account and balance account is zero because they are balanced. The relation between them is:

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Chapter 34, Problem 5P

To determine

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Balance of Payment (BOP): It is an account of what is received by residents of a country from the rest of the world and what these residents have paid out to other countries on account of sale of goods, services and other invisible items as well as on account of capital transfers from the other countries. It is divided into two accounts.

Current Account: It maintains all the transactions related to the exchange of goods and services and unilateral transfers. It includes shipping insurance and banking services, investment income, foreign travel, transfer payments and balance of trade.

Financial Account: It provides details of all the capital transfers such as investment and loans between one country and the rest world. Some components are banking capital, official capital, private capital and gold and foreign capital.

Relation between Current Account and Financial Account: In an economy sum of both current account and balance account is zero because they are balanced.

The relation between them is:

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