What does the balance of payments record?

The balance of payments records all economic transactions between a country and the rest of the world over a specific period. This comprehensive account includes not only exports and imports of goods but also services, income from investments, transfers, and financial transactions. By capturing these various flows, the balance of payments provides a complete picture of a nation's economic interactions with foreign entities, allowing for an analysis of its economic health and position in the global market. This broad definition distinguishes it clearly from other options that only focus on specific components of the economy, such as domestic activities or government transactions.