## The Balance of Payments

The balance of payments is a record of all economic transactions between one particular country and all other countries in the given period of time. It is used to compute a country’s net external position. In this case, selling cotton clothes by an Egyptian company located in Alexandria to an Indian importer and payments made by an Egyptian citizen for a tourism trip in Spain are recorded as an export and an import, respectively, in the balance of payments.

## Exports and Imports

Exports are goods, services, and other assets that a country sends to another country in exchange for payment. In this case, selling cotton clothes by an Egyptian company located in Alexandria to an Indian importer would be recorded as an export in the balance of payments. This export has a positive contribution to a country’s net external position.

Imports are goods, services, and other assets that a country receives from another country in exchange for payment. In this case, payments made by an Egyptian citizen for a tourism trip in Spain would be recorded as an import in the balance of payments. This import has a negative contribution to a country’s net external position.

## Net External Position

A country’s net external position is the difference between its exports and its imports. A positive net external position means that a country has a net credit balance with other countries, while a negative net external position means that a country has a net debit balance. In this case, if the export is greater than the import, then the net external position would be positive, and if the import is greater than the export, then the net external position would be negative.

## Balance of Payments Equation

The balance of payments equation is an equation that shows the relationship between a country’s exports, imports, and its net external position. The equation is:

Exports – Imports = Net External Position

## Related Questions

• What is the balance of payments?
• What are exports and imports?
• What is a net external position?
• What is the balance of payments equation?
• How does a country’s balance of payments affect its economy?
• What are the components of the balance of payments?
• What is a balance of payments deficit?
• How does a country’s balance of payments affect its currency?
• What is the difference between the balance of payments and the balance of trade?
• What are the benefits of a positive balance of payments?