Balance of payment:
Set
of accounts
that record
a country's
international transactions,
and which (because double
entry bookkeeping is used) always balance
out with no surplus
or deficit
shown on the overall basis. A surplus or deficit, however, can be shown in any
of its three component
accounts: (1) Current
account, covers
export
and import of goods
and services, (2) Capital
account, covers investment
inflows and outflows,
and (3) Gold
account,
covers gold inflows and outflows. BOP accounting
serves to
highlight a country's competitive
strengths
and weaknesses, and helps in achieving balanced economic-growth.
Balance
of trade:
The
balance of trade (or net exports, sometimes symbolized as NX)
is the difference between the monetary value of exports and imports of output in an economy over a certain
period. It is the relationship between a nation's imports and exports. A
positive or favorable balance of trade is known as a trade surplus if it
consists of exporting more than is imported; a negative or unfavorable balance
is referred to as a trade deficit or, informally, borrowed prosperity,
living beyond a nation's means, or a trade gap. The balance of trade is
sometimes divided into a goods and a services balance.
Balance
of payment always balances:
Balance of payments consists two
accounts namely current account and capital account. The current account deals
with import of visible and invisible items and unilateral transfers. a surplus
in this accounts makes a country's BOP a surplus and a deficit in this accounts
indicates that the country's BOP is deficit.
The capital account indicates the capital movements of that country with other countries.
it also shows the countries gold and other reserves.
a surplus and a deficit in the current accounts increases and decreases the
reserve and so the balance of payments is equalized always.
so when we say that BOP is deficit we mean only the current account in the BOP.
because BOP will always be equalized.