Question

Clarify the difference between balance of payments and balance of trade.

Answer 1

Basis	Balance of Payments (BOP)	Balance of Trade (BOT)
Meaning	It is an accounting statement that provides a systematic record of all economic transactions, between residents of a country and the rest of the world in a given period of time	It refers to the difference between amount of exports and imports of visible items.
Scope	It includes BOT, hence, is a wider concept.	It is a narrower concept as it is only a part of BOP account.
Components	BOP includes visible items, invisible items, unilateral transfers and capital transfers.	BOT includes only visible items.
Settlement	Unfavourable BOP cannot be met out of favourable BOT.	Unfavourable BOT can be met out of favourable BOP.