- BoP shows all economic transactions with the rest of the world.
- A current account deficit means a country imports more goods/services than it exports.
- A capital account surplus indicates more foreign investment/loans coming in.
- The overall balance of payments (current + capital account) reflects net foreign exchange earned.
- A surplus leads to an increase in foreign exchange reserves.
- A deficit leads to a decrease in foreign exchange reserves.
- It indicates a country’s financial health and its ability to meet external obligations.