CURRENT ACCOUNT BALACNE It shows a country earning and payments in foreign exchange.

It can be compared to a persons or a firm a earnings and expenditure. A surplus on this account strengthens that countrys international finacncial positions . it could use the surplus for further development of it economy . a deficit on the other hand create s problems. India had its worst experience in 1991. A deficit is a problem for any country but it creates a serious situation for the poor economies. Current account balance includes trade account balance too . within the current account. Exort and import of services have become more important then merchandise trade. For rich countries , ea rnings in the from of interest , profits and dividends are increasing as against most fo the d eveloping countries who make substantial payments on this count. Many of the poor countries, specially least developed countries receive large amount of money under unilateral receipts. Usually a benchmark of 1% GDP is set for current account deficit, beyond this point it is considered as a difficult situation for an economy as it requires to bridge this gap either through capital account receipts or drawing form foreign exchange reserves.

CAPITAL ACCOUNT BALACNE The capital account records all receipts and payment that involve the residents of a country changing either their assets or liabilities to residents of other countries. The transactions under this title involve direct investment , portfolio investment and borrowings and lendings form and to other countries. FOREGIN INVESTMETS DIRECT INVESTMEN is undertaken mostly by multinationals. There may be a few individuals who acquire some assets mainly in the form of houses in some foreign country . PORTFOLIO INVESTMENT refers to the acquisition of financial assets in foreign countries. Purchases of shares of a foreign company,bonds issued by a foreign government are some examples. investments