Which is correct about Balance of Payment (BOP)?

Solution

The balance of payments, also known as balance of international payments of a country is the record of all economic transactions between the residents of the country and the rest of the world in a particular period (over a quarter of a year or more commonly over a year). These transactions are made by individuals, firms and government bodies. A BoP crisis, also called a currency crisis, occurs when a nation is unable to pay for essential imports or service its debt repayments. Typically, this is accompanied by a rapid decline in the value of the affected nation's currency. This could lead to a situation where nation's government will exhaust its foreign reserves trying to support the value of the domestic currency.