What comprises the current account of the balance of payments?

The current account of the balance of payments comprises the balance of trade, net income from abroad, and net current transfers.

The current account is one of the two primary components of the balance of payments, the other being the capital account. It is a record of all transactions between a country and the rest of the world involving goods, services, income, and current transfers within a certain period of time.

The balance of trade, also known as the trade balance, is the largest component of the current account. It measures the difference between the value of goods and services a country exports and the value of goods and services it imports. If a country exports more than it imports, it has a trade surplus. Conversely, if it imports more than it exports, it has a trade deficit.

Net income from abroad, also known as factor income, is the second component of the current account. It includes income from foreign investments, interest payments, dividends, and salaries. If a country's residents earn more from their investments or work abroad than foreigners earn from their investments or work in the country, the country has a surplus in its net income from abroad. Conversely, if foreigners earn more from their investments or work in the country than the country's residents earn from their investments or work abroad, the country has a deficit in its net income from abroad.

Net current transfers, the third component of the current account, include all unilateral transfers of money by residents of a country to non-residents, and vice versa. These transfers do not involve a quid pro quo, or something in return. Examples of current transfers include remittances sent by foreign workers to their home countries, donations, aids, and grants.

In summary, the current account of the balance of payments provides a comprehensive picture of a country's economic interaction with the rest of the world. It reflects not only the competitiveness of a country's goods and services, but also the income its residents earn from abroad and the transfers they make and receive.