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• Balance of Payments (BOP)

The difference in total value between payments into and out of a country over a period.

Any transaction that causes money to flow into a country is a credit to its BOP account (i.e. sources of funds for a nation, such as exports or the receipts of loans and investments, are recorded as positive or surplus items) and any transaction that causes money to flow out is a debit (i.e. uses of funds, such as for imports or to invest in foreign countries, are recorded as negative or deficit items). Transactions taken into account include payments for the country's exports and imports of goods, services, financial capital, and financial transfers.

The BOP includes:

the current account, which mainly measures the flows of goods and services;

the capital account, which consists of capital transfers and the acquisition and disposal of non-produced, non-financial assets; and

the financial account, which records investment flows.

BOP account is prepared in a single currency, typically the domestic currency for the country concerned.

BOP is an important subject to be studied for a few reasons:

it provides detailed information concerning the demand and supply of a country's currency. (e.g. if Malaysia imports more than it exports, then this means that the supply of Ringgit is likely to exceed the demand in the foreign exchanging market, ceteris paribus. One can thus infer that the Ringgit would be under pressure to depreciate against other currencies. On the other hand, if Malaysia exports more than it imports, then the Ringgit would be likely to appreciate)

BOP data may signal its potential as a business partner for the rest of the world. If a country is grappling with a major BOP difficulty, it may not be able to expand imports from the outside world. Instead, the country may be tempted impose measures to restrict imports and discourage capital outflows in order to improve the BOP situation. On the other hand, a country experiencing a significant BOP surplus would be more likely to expand imports, offering marketing opportunities for foreign enterprises, and less likely to impose foreign exchange restrictions.

BOP data can be used to evaluate the performance of the country in international economic competition. Suppose a country is experiencing trade deficits year after year. This trade data may then signal that the country's domestic industries lack international competitiveness.