The balance of payment is a standard double entry accounting record and as such subject to all the rules of double entry book-keeping viz. for every transaction two entries must be made. One credit (+) and one debit (-) and leaving aside errors and omissions, the total of credits must exactly match the total of debits i.e. the balance of payments must always balance.

Simple accounting rules followed in BOP are the following :

a) All transactions which lead to an immediate or prospective payment from the rest of the world to the country should be recorded as credit. Hence, all payments received for export of goods and services as also loans received abroad or inward foreign investment-whether direct or portfolio would be credit items,

b) Conversely, all transaction which result in an actual or prospective payment from the country to the rest of the world should be recorded as debits.

c) A transaction which results in an increase in demand for foreign exchange is to be recorded as debit entry while a transaction which results in an increase in the supply of foreign exchange is a credit entry.

1 The Current Account

A country's current account balance can significantly affect its economy, therefore, it is important to identify the factors that influence it. The most important factors are:

i) Inflation

ii) National Income

iii) Government Restructures

iv) Exchange Rates.

Let us discuss them one by one.

Inflation: If a country's inflation rate increases relative to the countries with which it trades, its current account would be expected to decrease. Due to higher prices at home, consumers and corporations with in the country will most likely purchase more goods overseas (due to high local inflation), while tile country's exports to other countries will decline.

National Income: If a country's national income rises by a