Question

Give the meanings of Balance of Trade and Balance on Current Account of Balance of Payments Accounts.

Answer 1

Balance of Trade (BOT here onwards) for a country refers to the record of visible trade transactions of the country with the rest of the world. In other words, it shows the balance of exports and balance of imports of all the physical goods of a country.

The Current Account of BOP is that account which maintains the records of imports and exports of goods and services as well as the record of unilateral transfers. The record of export and import of goods is also called the 'Balance of Visible Trade. On the other hand, the record of export and import of services is also called the 'Balance of invisible trade'.

Current Account Balance $=$ Balance of Visible Trade $+$ Balance of Invisible Trade $+$ Balance of Unilateral Transfers
The balance of Current Account can either be deficit or surplus.
If the export of goods and services falls short of the imports of goods and services, then the Current Account balance is deficit. On the other hand, if the export of goods and services exceeds the import of goods and services, then the Current Account balance is surplus.