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State and explain the three components of Balance of Payments (BOP)

      

State and explain the three components of Balance of Payments (BOP).

  

Answers


Zainabu
1. The current account of balance of payments

The current account within the balance of payment records values of current outflows (payments) and inflows (receipts) between residents of the home country (Kenya) and the rest of the world.

The major categories of transactions within the current account are:

Payments and receipts for imports and exports of goods

Payment and receipts for imports and exports of services

Payment and receipt of current income earned on foreign investments, owned by residents of the home country (Kenya), which do not include new investments, but only the current income from investments already made among others.

2. The capital account of balance of payments

The capital account of the balance of payments records international lending and borrowing and purchases and sales of assets by individuals, firms and government agencies.

When Kenya residents purchase foreign assets, or advance loans to foreigners, these transactions are entered as debits in Kenya’s capital account and are known as capital outflows.

The assets could be securities (treasury bills or bonds) issued by foreign central banks or physical assets like houses, factories and real estate or shares/stocks in foreign companies.

3. The official settlements account of balance of payments

All transactions within the official settlement account of the balance of payments are conducted by authorized government agencies, usually the country’s monetary authorities.

In Kenya, these are the Treasury and the Central Bank of Kenya (CBK).

Components of the official reserve assets, which are recorded on the official settlements account include:

The Gold holdings of the country’s monetary authorities

Special Drawing Rights (SDR or “paper gold”) created on the books of the International Monetary Fund (IMF) for use by member countries.

A country’s foreign exchange reserve holdings kept by the IMF in the US Treasury.
Official holdings of foreign currency reserve by a country’s monetary authorities. Among others.


Zainabdawa answered the question on August 1, 2018 at 08:44


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