Through Chapter 3 of the course text by Eun & Resnick (2015), I comprehend the Balance of Payments (BOP). At its core, the BOP is a record of a country’s transactions with the world for a specific period. Usually, the transactions occur during trading either by individuals, private and public corporations, or even the government. In the course of trading, deductions and additions are made. It is crucial to monitor funds' flow to determine whether a country has a deficit or is in surplus. Also, there are great insights from the reading.
Breeding familiarity with the term and concept behind the “balance of payments” is crucial. Through the idea, one can understand the transfer of exports and imports across national borders. The ability to account for these goods and assets' movement is critical in the modern business environment.
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The flow of goods in and out of the BOP is similar to the concept of credit and debit in accounting. When a country pays to another, the records are considered debit under the BOP. Receiving payments from other nations for certain transactions is regarded as a credit under the BOP. Also, the BOP has three major accounts; financial account, current account, and capital account. Just as a balance sheet in accounting, the current account must balance the financial and capital in ideal transactions.
Lastly, the chapter gave helpful information regarding categories of capital investment. These include direct investment, portfolio investment, and other investments (Eun & Resnick, 2015). When an investor has control of the foreign business, then direct investment occurs. Portfolio investments are ones that one cannot have control over. Bonds and stocks are examples. The course also exposes one to tax laws, which places one in a better position to invest locally and in foreign markets in the future.
Reference
Eun, C. S., & Resnick, B. G. (2015). International financial management (7th ed https://redshelf.com/
