Question

Identify the two major accounts of the balance of payments and explain the key difference between the two accounts

Answer 1

The two major counts of the balance of payments are the current account and capital account.

The current account represents a country's net income over a period of time. It deals with a country's short-term transactions or the difference between the receipt and payment in cash as well as non-capital items. Thus current account deals with actual transactions since they have a real impact on income. While capital account records the net change of assets and liabilities that are, the inflows and outflows of capital that directly affect a nation's foreign assets and liabilities.