BALANCE OF PAYMENTS, FOREIGN EXCHANGE AND INVESTMENTS
The Balance of Payments (BoP) is a comprehensive record of a country’s economic transactions with the rest of the world over a specific period. It includes all financial exchanges, encompassing trade in goods and services, income flows, and financial transfers. The BoP is divided into three main components: the current account, the capital account, and the financial account. The BoP provides critical insights into a country's economic health and its interactions with the global economy.
Foreign exchange refers to the currencies used in international trade and investment. The foreign exchange market (Forex or FX) is the global marketplace for buying and selling currencies. Exchange rates, which determine the value of one currency in terms of another, are influenced by factors such as interest rates, inflation, political stability, and economic performance. Effective foreign exchange management is crucial for maintaining economic stability and supporting international trade and investment.
Foreign investments involve the allocation of capital from one country to another, typically in the form of Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI). FDI entails a long-term interest and significant control over a foreign enterprise, whereas FPI involves investing in financial assets such as stocks and bonds without direct control. Foreign investments play a vital role in economic development by providing capital, technology transfer, and employment opportunities.
The Balance of Payments (BoP) is a comprehensive record of a country’s economic transactions with the rest of the world over a specific period, usually a year or a quarter. It includes all financial exchanges, encompassing trade in goods and services, income flows, and financial transfers. The BoP is divided into three main components:
1.Current Account
i.Trade Balance: This includes exports and imports of goods. A positive trade balance (surplus) occurs when exports exceed imports, while a negative trade balance (deficit) occurs when imports exceed exports.