The BOP is the country’s way of monitoring the international trading of its product and service offerings, and financial assets (Melvin and Norrbin, 2013, p.59; Cool and Goddard, 2006, p.92, Stovel, 1959, p.21). When a country receives money, it is automatically credited to its account, and it is debited from its account once it has paid or given money. BOP is therefore the inflows and outflows of cash. Inflows are credit and outflows are debit. The work at hand establishes the discussion of the three essential components of the BOP and the issues pertaining to its equilibrium.
The current account consists of merchandise exports and imports and invisible exports and imports (OECD, 2000, p.151; Rana and Alburo, 1987, p.50). It is technically the flow of product and service offerings into a country. This also includes revenue on investments done publicly or privately. Generally, the current account consists of three essential components too. The first component is the net export. This is the biggest part of the current account, because it is around 80 to 90 percent. The next component is the net foreign income. This may be the income payment on stocks and bonds. Thus, at some point the net foreign income may be the interest payment on the bond or the dividend payment. Aside from the two components mentioned so far, the other part of current account is the foreign aid (Gaspar et al., 2013, p.93; Eicher et al., 2009, p.352; Clarida, 2007, p.38). Foreign aids are amount of money that the other economies may have directly transferred to a certain economy for the purpose of providing aid. This can also take place when a worker sends money home.
Financial account is the next relevant component of BOP. It is the International transfer of capital, and attainment and clearance of assets that are non-financial and non-produced (OECD, 2005, p.45; International Monetary Fund, 2000, p.50). The financial account consists of real assets and financial assets. The real asset