ABSTRACT
This chapter describes the balance of payments and its components, and how they are applied to estimate the international financial position of a country. The balance of payments is a statement of a country’s international transactions. Anything imported or exported, anything spent by residents travelling abroad, and anything spent by visiting foreigners is accounted for in the balance of payments. To keep track of such a broad spectrum of transactions, the balance of payments is integrated by three major accounts: current, capital, and official settlement accounts. The settlement account includes purchases and sales of central banks, international official reserves, and transfers of drawing rights between countries. Each transaction recorded in the balance of payments gives rise to two entries: a debit and a credit. A debit entry implies a use of foreign exchange, an outflow of funds, an import, or a payment. A credit entry is a source of foreign exchange, an inflow of funds, an export, or a receipt.
