Balance of payments(BOP) reflect all payments and liabilities to foreigners’ as well as  all payments and obligations received from foreigners. It is accounting method that is used to keep track of transactions between a country and its international trading partners. The BOP consists of three main accounts: the current account, the capital account, and the financial account.

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When a country experiences as a current account deficit, it must generate a surplus in its capital account. Capital flows tend to be dominant factor influencing exchange rates in the short term as capital flows tend to be larger and more rapidly change than goods flows.