The balance of payments is part of a larger system of social accounts recording the economic activity of an economy and its various sections. The social accounts relate to economic transactions not only within the domestic economy but also between the domestic economy and the rest of the world.

Balance of payments is concerned with economic transactions, Five basic types of economic transactions may be distinguished. They are:

a) Purchases and sales of goods and services against financial items i.e. the interchange of goods and services against claims and monetary gold;

b) Barter, i.e. the interchange of goods and services against other goods and services;

c) The interchange of financial items against other financial items e.g. sale of securities for money, or the repayment of commercial debts in money;

d) The provisions or acquisition of goods and services without requital, e.g. grants in 1aid;

e) The provision or acquisition of financial items without requital, e.g. in payment of taxes or as a gift

COMPONENTS OF BALANCE OF PAYMENTS

The balance of payments is a collection of accounts conventionally grouped into three main categories with subdivisions in each. Three main categories are:

1. The Current Account: Under this are included imports and exports of goods and services and unilateral transfers, which reflect government and private gifts and grant

a. Merchandise: Merchandise exports valued on F.O.B.. (Free on board) basis, on private and government account are the credit entries data for these items. They are calculated from the various documents exporters fill and submit to designated authorities.

Imports valued at C.I.F. (Cost, Insurance and Freight) are the debit entries. The difference between the totals of credits and debits appears in the ‘Net’ column. This is the balance on Merchandise Trade Account, a deficit, if negative and a surplus if positive.

b. Non-Monetary Gold Movements: Gold is both a commodity and a financial asset. It is treated as a financial assets when it is held by the monetary authority. “Monetisation” of gold refers to the transaction when the monetary authority acquires gold, from residents and non residents to add to reserves. This get recorded as a debit entry in reserve account and the offsetting credit entry is made in the non monetary gold account. Conversely, when the monetary authority acquires gold demonetisation, reserve account shows a credit and the non monetary gold movement account shows a debit. Gold imported (or exported) by other agencies form a part of the merchandise trade account.

c. Invisibles: Credits under ‘invisibles’ consist