BALANCE OF PAYMENTS (B.O.P)
At the end of this chapter, students should be able to:
- Identify factors that give rise to payments of money into and out of the home country.
- Explain B.O.P. concepts such as the trade balance, the current account balance and the overall balance.
- Identify the different ways of dealing with balance of payments disequilibrium.
- Trace developments in Nigeria’s balance of payments.
DEFINITION OF BALANCE OF PAYMENTS
Balance of payments may be defined as the relationship between the sum total of a country’s payment for her imports and receipts for her exports. It is thus a statement of income and expenditure on international account, for a period of time, usually one year. It can also be referred to as a statement or record showing the relationship between a country’s total payments to other countries and its total receipts from them in a year.
COMPONENTS OF BALANCE OF PAYMENTS
A country’s Balance of payments can be divided into three major components, namely, current account, capital account and monetary movements account.
- Current Account: This is made up of the total receipts and payments on both visible and invisible goods and services. Invisible services are insurance, banking, transportation, interest payment tourism, etc. While visible goods an automobiles, cocoa and crude oil.
- Capital Account: This account is ma up of the movement or flow of money or capital from one country to another such as investment, international i and loans. There are short and long term capital movements. A country’s balance of payments is favourable when me received is more than the amount she pays out and vice-versa.
- Monetary Movement Account: Thisaccount shows how the balance on both current and capital accounts is settled. It shows how the surplus or def both account is settled.