Balance of Trade and Balance of Payments: Differences

Balance of Trade vs Balance of Payment

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.

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This article is a ready reckoner guide for the students to learn the 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.

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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