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 utilise 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.
This article is a ready reckoner guide for the students to learn the difference between the balance of trade and balance of payments.
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Balance of trade |
Balance of payments |
| Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 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. |
| Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 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. |
| Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 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. |
| Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Type of transactions included | |
| Transactions related to goods are included in BoT. | Transactions related to transfers, goods, and services are included in BoP. |
| Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Are capital transfers included? | |
| No | Yes |
| Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 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. |
The above-mentioned is the concept that is elucidated in detail about the difference between balance of trade and balance of payment for Commerce students. To know more, stay tuned to BYJU’S.
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