The balance of payments of a country is a systematic record of

The correct answer is all import and export transactions of a country during a given period of time, normally a year.

Key Points

• The balance of payments (BOP) of a country is the record of all economic transactions between the residents of a country and the rest of the world in a particular period (over a quarter of a year or more commonly over a year).
  • Balance of Payment (BoP) of a country can be defined as a systematic statement of all economic transactions of a country with the rest of the world during a specific period usually one year.
  • It indicates whether the country has a surplus or a deficit in trade.
    • When exports exceed imports, there is a trade surplus and when imports exceed exports there is a trade deficit.
• Hence option 1 is correct.

​​Additional Information 

• Components of BoP:
  • For preparing BoP accounts, economic transactions between a country and the rest of the world are grouped under - Current account, Capital account, and Errors and Omissions. It also shows changes in Foreign Exchange Reserves.
  • Current Account: It shows the export and import of visible (also called merchandise or goods - represent trade balance) and invisible (also called non-merchandise).
    • Invisibles include services, transfers, and income.
  • Capital Account: It confers capital expenditure and income for a country.
    • It gives a summary of the net flow of both private and public investment into an economy.
    • External Commercial Borrowing (ECB), Foreign Direct Investment, Foreign Portfolio Investment, etc form a part of the capital account.
  • Errors and Omissions: Sometimes the balance of payment does not balance. This imbalance is shown in the BoP as errors and omissions. It reflects the country’s inability to record all international transactions accurately.
  • Changes in Foreign Exchange Reserves: Movements in the reserves comprise changes in the foreign currency assets held by the Reserve Bank of India (RBI) and also in Special Drawing Rights (SDR) balances.
  • Overall the BoP account can be a surplus or a deficit. If there is a deficit then it can be bridged by taking money from the Foreign Exchange (Forex) Account.
    • If the reserves in the forex account are falling short then this scenario is referred to as the BoP crisis.​