Balance of Payments
The balance of payments (BoP) is an accounting statement recording all economic transactions between a country and other countries. It comprises the current account (trade, income, transfers) and the capital and financial account (investment flows). The BoP must balance: surpluses and deficits offset.
Real World
The UK ran a current account deficit of around £80 billion in 2022, largely because it imported more goods than it exported, but this was partly offset by surpluses on financial account flows such as foreign investment into London property and UK government bonds.
Exam Focus
Always state that the BoP must balance overall — a current account deficit is financed by a capital/financial account surplus.
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