BALANCE OF PAYMENTS AND PROBLEM OF DEFICITS:
The principal tool for the analysis of the monetary aspects of international trade is the balance of international payments settlement. This statement, also simply known as the 'balance of payments' (BOP), is a systematic record of all international economic transactions, visible and invisible, of a country during a given period, usually a year. In other words, the statement is a device for recording all the economic transactions within a given period between the residents of a country and the residents of other countries. The BOP of each of the individual countries, technically speaking, always 'balances'. Such equality in the debit and credit sides of the BOP, known as equilibrium, has no economic significance. It simply results from the double entry book-keeping procedure which is used to record the transactions.
The analysis of the BOP can be done in terms of its two major sub-divisions: (a) Current Account, and (b) Capital Account.