Balance Of Payment And Trade


 
 
Concept Explanation
 

Balance of Payment (BoP)

Balance of payments (BoP) is a systematic record of all economic transactions among the residents of a country and the rest of the World. BoP records the transactions in goods, services and assets among the residents of a country and the rest of the world for a specified time period, typically a year. There are two main accounts in the BoP - the Current Account and the Capital Account. In addition to that, BoP includes errors and omissions and change in foreign exchange reserves. BoP is broadly divided into two parts.

Balance of payments is thus, an overall record of all economic transaction of a country in a given period, with rest of the world.

Favourable Balance of Payments: Value of total receipts more than total payments.

Adverse Balance of Payments: .Value of total receipts less than total payments.

Balanced Balance of Payments: Value of total receipts equals total payments.

Balance of Trade (BoT)

When the difference in the value of imports and exports of only physical goods or visible items, is taken into account, it is called balance of trade or net exports. Balance of trade may be

1. Surplus or Favorable In this situation exports are greater than imports. i.e. Exports Imports

2. Deficit or Unfavorable In this situation, imports are greater than exports. i.e. Exports Imports

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