Balance of Trade vs Balance of Payment

What is 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.

What is Balance of Payment?

The balance of payments is a statement of all transactions that are made between entities in one nation and 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 all the students to learn the difference between the Balance of Trade and Balance of payments.

Basis Balance of Trade Balance of Payment
Meaning 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.
Records Goods related transactions. Transactions associated to both goods and services.
Capital Transfers Not included in BoT. Included in BoP.
Which is better? Just a partial view of the nation’s economic status is furnished. A clear and complete view of the nation’s economic status is furnished.
Result BoT can either be favourable, unfavourable or balanced. Both the receipts and payments sections tallies.
Component Component of Current Account of the Balance of Payment. Both Current and Capital account.

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