Record of the value of all transactions between residents of one country and the residents of all other countries in the world over a given period of time.

Three main parts: current account, capital account, financial account

Current Account

1. Balance of trade in goods: Measure of revenue from exports of tangible physical goods minus expenditure on imports of tangible goods.
2. Balance of trade in services : Exports - imports of services
3. Income: Net monetary movement of profit, interest and dividends as a result of financial investment abroad. Eg. profits from branches of domestic firms abroad > positive, interest from money invested in foreign banks
4. Current Transfers: Net transfers of money>payments when no goods are traded. eg: remmitances, gifts

Capital Account:

1. Capital Transfers: doubt
2. Doubt

Financial account: net change in foreign ownership of domestic financial assets.

1. Direct investment: Measure of long term assets. buying of property, stock. FDI
2. Portfolio investment: doubt
3. Reserve assets: Reserves of gold and foreign currencies that countries hold. Net chnages in this over period of time, balances the accounts

Balance of payments always balances.