Structure of balance of payment account consists of the following :
1. Current Account – Current Account records all items of flow nature. Current Account records all items of
a) Export and Import of goods – Current Account shows imports and exports of visible items goods. For example – Steel, machinery, etc.
b) Export and Import of Services – Current Account shows export and import of invisible items. For example – services like banking, insurance, etc.
c) Unilateral or Unrequired Transfer – Unilateral or Unrequired Transfer are receipts which the residents of country receive or payment that the residents of country make without getting anything in
2. Capital Account – Capital Account records all items of stock nature. The Components are :
a) Private Transactions – Private Transactions are transactions that are affecting assets and liabilities by individuals business etc and other non government entities.
b) Official Transactions – Official transactions are the transactions affecting assets and liabilities by the government and the agencies.
c) Direct Investment – Direct investment means purchasing an asset and acquiring control of it.
d) Portfolio Investment – It is the acquisition of an asset that does not give the purchases control over the asset, like purchase of shares in foreign company.
3. Reserve Capital – Reserve account is not different from the capital account because it relates to financial assets and liabilities. Reserve account balances that net of Current and capital accounts. It shows the means of international payment that monetary authorities have acquired or last during a particular period. Here international payment means the payment in terms of gold or foreign currency which h are freely convertible. It means that only handful currencies are held on official reserve. If there is surplus at the current account and capital account, there will be negative balance in reserve account which shows the increase in the reserve account which shows the increase in the reserves. Thus, negative entry in reserve account information increase in reserves. Movement in official reserves indicates the extent of direct intervention in the foreign exchange market by the Central bank. When the monetary authorities want to stop the appreciation of home currency, they sell reserves and buy the home Currency reducing the official reserves conversely, when they want to stop the depreciation of home Currency they start buying the foreign currency and selling home Currency.