Components of Balance of Payment Account.

(1)  Current Account : Current Account is that Account which report Import and Export of Goods and Services and unilateral transactions. In other words transaction relating to Trade in Goods and Services and Transfer Payment constitute the Current Account .

Components of Current Account :

(i)  Visible Items : It includes the exports and imports of all physical goods. Their difference is known as trade balance. It may be balanced, surplus or deficit. 

(ii)  Invisible Items: It can be classified in :

(a)  Non-factor Services :  It includes services rendered and received by the residents of country with respect to rest of the world, such as transportation services, financial services (insurance, banking services) provided to foreign tourists, students etc. Services provided to rest of world is included in credit side and services received on debit side.

(b)  Income on Investments : It includes interest on foreign loans, profit, receipts of payments, royalties, etc. Receipts of these income are included in credit side and payments are included in debit side.

(iii)  Transfer Payments :  It refers to the unilateral transfers, such as foreign gifts, donations, etc., which domestic residents and Government receives or residents and Government makes to abroad. There is no repayment for such items. They can be classified into:- Official transfer payments (transfer payments by Government) and private transfer payments

(transfer payments by individuals, institutions or organisations). Receipts of these transfers are included in credit side and payments of these transfer are included in debit side.

(2)  Capital Account : Capital Account is that Account which records all such transactions between residence of the country and rest of the world which cause a change in the assets or liability status of the residence of a country or it’s Government. 

Components of capital accounts -

(i) Private Capital : It includes short term and long term capital, which includes

(a) Short Term Capital : Purchase of short term securities, speculative purchase of foreign currency, etc.

(b) Long Term Capital : Foreign Direct Investment, Portfolio investment, long term loans., etc

(ii)  Official Capital : It includes loans, re-purchase and re-sale of securities sold to the foreigners, sale or purchase of gold from abroad, etc.

(iii)  Banking Capital : Banking capital essentially covers movements in the external financial assets and liabilities of commercial and co-operative banks authorized to deal in foreign exchange.

The purchase of an assets in another country is included in debit side and sale is included in credit side.