BOP : Balance Of Payment

An accounting record of all monetary transactions between a country and the rest of the world. It includes  payments for the country's exports and imports of goods, services financial, capital and financial transfers. It is also known as balance of international payments encompasses all transactions between a country’s residents and its nonresidents involving good, services and income financial claims on and liabilities to the rest of the world and transfers such as gifts.

Types

1.current account: shows the net amount a country is earning if it is in surplus, or spending if it is in deficit. It is the sum of the balance of trade (net earnings on exports minus payments for imports), factor income (earnings on foreign investments minus payments made to foreign investors) and cash transfers.

2.Capital Account records the net change in ownership of foreign assets. It includes the reserve account (the foreign exchange market operations of a nation's central bank), along with loans and investments between the country and the rest of world (but not the future regular repayments/dividends that the loans and investments yield; those are earnings and will be recorded in the current account).

BOP identity assumes that any current account surplus will be balanced by a capital account deficit of equal size – or alternatively a current account deficit will be balanced by a corresponding capital account surplus.

“Balance of payments surplus" (or deficit  a deficit is simply a negative surplus) refers to the sum of the surpluses in the current account and the narrowly defined capital account (excluding changes in central bank reserves). Denoting the balance of payments surplus as BOP surplus

BOP surplus = Current Account Surplus + Narrow Capital Account Surplus

IMF Definition : Current a/c +Financial a/c +Capital a/c +Balancing Item = 0

While the overall BOP accounts will always balance when all types of payments are included, imbalances are possible on individual elements of the BOP such as the current account the capital account excluding the central bank's reserve account or the sum of the two. Imbalances in the latter sum can result in surplus countries accumulating wealth, while deficit nations become increasingly indebted.

The term "balance of payments" often refers to this sum: a country's balance of payments is said to be in surplus.