What is balance of payments? Explain its major components. Why is it useful to compute a country’s balance of payments?

2 The Balance of Capital, where the purchases and sales of assets are recorded; Represents the capital movements of the economy. Includes the transfer of ownership transactions, including the creation and settlement of credit instruments, assets and liabilities.

• Direct investment: its object is to acquire permanent and effective participation in the management of a company operated in an economy that is not the investor’s economy.
• Portfolio Investment: includes long-term bonds, and shares and other equity capital not included in the categories of direct investment and reserves.
• Long-term bonds: includes bonds and obligations with a maturity of more than one year. The holder has the unconditional right to a fixed monetary income and is generally issued and traded on organized markets.
• Shares and other equity interests; includes titles and documents; the participation in the social patrimony is generally represented by shares, participations or analogous documents.
• Other Capital: are capital transactions not included in direct investment, investment portfolio or reserve.
• Reservations: Monetary gold, special drawing rights, reserve position and use of IMF credit are included. Reservations are classified as:
  Monetary gold: the gold held by the authorities as a financial asset.