Answered Essay: In the balance of payments (BOP) accounts, what are the four basic components of the current account? How can information about the financing of a country's current account be obtained?

In the balance of payments (BOP) accounts, what are the four basic components of the current account? How can information about the financing of a country’s current account be obtained?

Expert Answer


In the balance of payments (BOP) accounts, the four basic components of the current account are:

1. Goods

They are movable and physical in nature, and a change of ownership from/to a resident (of the local country) to/from a non-resident (in a foreign country) is required for a transaction to be recorded under goods category. Example, general merchandise and non-monetary gold.

2. Services

They are intangible action for example, transportation, business services, tourism or licensing. When money is paid for a service, it is called an import (a debit), and if money is received, it is called an export (credit).

3. Income

The money going in or out of a country from transactions like salaries, dividends, direct investments.

4. Current Transfers – Current transfers are unilateral transfers with nothing received in return. For example, workers’ remittances, donations, aids and grants, official assistance and pensions.

Financing of a country’s current account can be derived by looking at the Capital and Financial Accounts in the Balance Of Payment.

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