how does BOP reflect supply , demand status of foreign exchange for a country? 6 marks

Balance of Payment is the record of statements of economic transactions of a country with the rest of the world. In this way, it records the inflow of foreign exchange into the country and the outflow of foreign exchange from the country and thereby, reflects the demand for foreign exchange as against its supply. This is reflected in the current account and capital account of BOP. For instance, a deficit in the current account implies that the exports of the goods and services fall short of the import of goods and services. However, the export of goods and services reflect the supply of foreign exchange, on the other hand, the import of goods and services reflect the demand for foreign exchange. In this way, imports being greater than exports (current account deficit) implies demand for foreign exchange exceeds the supply of foreign exchange.