The BOP is a systematic record of the transactions between
the residents of the country with the rest of the world. The two
main accounts in the BOP are the current account and the capital
account. The current account records international transactions in
goods and services, including transfers while the capital account
record international transactions in real and financial assets.
A nation, like individuals and firms must pay for what they buy
from abroad. Hence, if the current account is in deficit this needs to
be financed by selling assets or by borrowing abroad. Therefore
any deficit in the current account is financed by an offsetting
capital inflow or a surplus in the capital account, and vice versa i.e
Current Account + Capital Account = 0
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