Explain how the current account and balance of payments are related?

Besides the answer that the current account is part of the balance of payment.|||Current account records the country's imports and exports of goods and services,plus incomes and transfers of money between inside and outside.





Balance of payment is the difference between revenues and expenditures occurred to the country, added by loss and gain to the country's income.





BP= (current account) + (capital account) + (Financial Account)





The NET result of the equation, depends on the sign and value of the current account, and the other 2 accounts, bcoz they add up to give the NET result on the Balance of payments.





BP is a sum of all the transactions in the 3 main accounts summarised in the equation above.


Higher value of the minus sign encourages deficit and higher value of positive sign creates a surplus in the final Balance of payments (BP). .





Eg, if we substitute BP = A + B + C


If A = current account, and is negative, then it upsets the total of all 3 accounts to a negative sign, called deficit.