ECONOMICS
BALANCE OF PAYMENTS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Always balanced
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Always deficit
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Always surplus
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Fluctuates
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Detailed explanation-1: -The balance of payment of a country must always be in equilibrium, a surplus on one account must be met with a deficit of equal magnitude on the other. Thus, the sum of the capital account and the current account must always be zero leading to a balance in the BOP in accounting sense.
Detailed explanation-2: -In the BoP accounts, all the receipts from abroad are recorded as credit and all the payments to abroad are debits. Since the accounts are maintained by double entry bookkeeping, they show the balance of payments accounts are always balanced.
Detailed explanation-3: -Since every transaction in the balance of payments has two offsetting entries, the total balance of payments should be zero.
Detailed explanation-4: -Balance of Payment (BOP) of a country can be defined as a systematic statement of all economic transactions of a country with the rest of the world during a specific period usually one year.