Balance of trade
The balance of trade is
the distinction between the value of a nation’s imports and exports for a given
time frame. The BoT is the largest constituent of a nation’s balance of
payments. Economists utilize the BoT to compute the associative potency of a
nation’s economy. The BoT is also known as the trade balance or the
international trade balance.
Balance
of payment
The balance of payment
is a statement of all the transactions that are made between entities in one
nation and the rest of the world over a particular time frame, such as a
quarter or a year. To put it in other words, the BoP is a set of accounts that
identifies all the commercial transactions operated by the nation in a specific
period with the remaining nations of the world. It documents a record of all
the monetary transactions performed globally by the nation on goods, services,
and income during the year.
Difference between the
balance of trade and balance of payments.
|
Balance
of trade |
Balance
of payments |
|
Definition |
|
|
Balance of trade or BoT is a
financial statement that captures the nation’s import and export of
commodities with the rest of the world. |
Balance of payment or BoP is a
financial statement that keeps track of all the economic transactions by the
nation with the rest of the world. |
|
What does it deal with? |
|
|
It deals with the net profit or
loss that a country incurs from the import and export of goods. |
It deals with the proper
accounting of the transactions conducted by the nation. |
|
Fundamental Difference |
|
|
Balance of trade (BoT) is the
difference that is obtained from the export and import of goods. |
Balance of payments (BoP) is the
difference between the inflow and outflow of foreign exchange. |
|
Type of transactions included |
|
|
Transactions related to goods are
included in BoT. |
Transactions related to transfers,
goods, and services are included in BoP. |
|
Are capital transfers included? |
|
|
No |
Yes |
|
What is its net effect? |
|
|
The net effect of BoT can be
either positive, negative, or zero. |
The net effect of BoP is always
zero. |