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capital account
balance is made up of public sector flows of 
capital
into and out of the country, 
such as government loans to other countries. 
The balance on the 
financial account
is made up of flows of capital to and from the non-government 
sector, such as direct investment in overseas facilities; portfolio investment (in shares, bonds, and so 
on); and speculative flows of currency. Movements on government foreign currency reserves are also 
included under this heading. 
When journalists or economists speak of the balance of payments they are usually referring to the deficit 
or surplus on the 
current account
, or possibly to the surplus or deficit on trade in goods only (this is also 
known as the 
balance of trade
).
 EXAM FOCUS POINT 
Confusion of the balance of payments with the Government budget is common. Make sure that the 
distinction is clear in 
your
 
mind. 
 EXAM FOCUS POINT 
Do not equate a trade surplus or deficit with a 'profit' or 'loss' for the country. A country is not like a 
company and the trade balance has nothing to do with profits and losses.
BPP Tutor Toolkit Copy

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PART A: THE BUSINESS ORGANISATION, ITS STAKEHOLDERS AND THE EXTERNAL ENVIRONMENT 
 
80
 
11.2 Equilibrium in the balance of payments 
A balance of payments is in equilibrium if, over a period of years, the exchange rate remains stable and 
autonomous credits and debits are equal in value (the annual trade in goods and services is in overall 
balance). However, equilibrium will not exist if these things require the government to introduce 
measures which create unemployment or higher prices, sacrifice economic growth or impose trade 
barriers (eg import tariffs and import quotas). 
11.3 Surplus or deficit in the current account 
A surplus or deficit on the balance of payments usually means a