Definition Of Balance Of Trade And Balance Of Payment

In other words balance of payment will always be in equilibrium.

Definition of balance of trade and balance of payment. The balance of trade is the balance of the imports and exports of commodities made to by a country during a particular year. The balance of trade bot is defined as the country s exports minus its imports. Nevertheless if you know can conceptualize both it will become somewhat easier for you to extract relevant information as well as understand the foreign exchange policies of the country. It s easy to measure since all goods and many services pass through the customs office.

The balance of payments has three components the current account the financial account and the capital account current accounts measure international trade net income on investments and direct payments. The balance of payments is the record of all international trade and financial transactions made by a country s residents. The current account also takes into account all payments across country borders. Balance of trade vs balance of payments.

Balance of trade bot. Definition of balance of trade. Balance of trade may be favourable or unfavorable but balance of payment always balances just like trading profit and loss account of a business shows a profit or loss but the two sides of balance sheet assets and liabilities always tally. The balance of trade bot is the difference between a country s imports and its exports for a given time period.

The balance of trade is the value of a country s exports minus its imports. Trade refers to buying and selling of goods but when it comes to buying and selling of goods globally then it is known as import and export. Balance of trade does not record capital transfers whereas the balance of. It s the biggest component of the balance of payments that measures all international transactions.

Clearly the balance of payment is an application of double entry book keeping with the result that debits and credits will always balance. The key difference between balance of trade and balance of payments lies in the fact that balance of trade records a country s imports and exports of goods over the world while the balance of payment records all the transactions of a country s economy with other countries. The balance of trade is the largest component of the. For any economy current asset bot is one of the significant components as it measures a country s net income earned on global assets.

Balance of trade thus forms a part of balance of payment. Balance of payment is a wider concept as compared to balance of trade which is just one of the four components of the former. Calculation of balance of payment considers all the receipts and payments made by residents of an economy between the other countries whilst balance of trade.