Friday, August 28, 2009

Difference between Balance of Trade and Balance of Payments

Balance of trade represents the difference between visible exports and imports of a country. Balance of payments represents invisible items included in addition to visible items.

Balance of Payments includes the following items.

1. Export and Import of Commodities: Every country exports some goods and imports some goods. By exporting goods it becomes a creditory country on the other hand by importing goods it becomes a debtor country.

2. Cost of Transportation: Cost of transportation has to pay for export and import of goods. If export and import trade are carried in foreign shipping then country is a debtor country in respect of this item.

3. Interest on Capital lent Abroad: Rich and wealthy countries lend their capital to needy countries. The debtor countries have to pay interest on borrowed capital.

4. Banker’s Commission: Banks working in foreign countries earn commission and foreign countries stand as debtors to the countries to which the banks belong.

5. Expenses of Tourists: Foreigners may visit a country for tourism. They spent money in that country where they go for tourism. Such expenses may increase the value of import or export.

6. Foreign Education: When a student goes abroad for higher studies then he spent a lot of money in that country which increase the value of import or export.

7. Political Expenses: For payment of diplomatic services a country spends money in foreign country. Such expenses must be included in the calculating indebtedness. In view of Meade visible and invisible exports and imports are regarded trade items on the other hand the loans and grants which are taken or given to different countries are regarded as transfer item. The difference of trade items is called as balance of trade. But when transfer items are included in trade item, it is called balance of payment.

10 comments:

  1. is ma difference kaha haaaaaaaaaaaaaaaa????????????

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  2. not at al helpful :-/

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    The above link can help you!!

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  4. main idea k liye thek hai.

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  5. can u please tell me the dff btw terms of trade and
    B.O.P.

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  6. wow.... lolx :D :P

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  7. not so much useful..........

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    Replies
    1. Balance of payments should be distinguished from balance of trade. Balance of trade refers to the export and import of visible items, i.e., material goods. It is the difference between the value of visible exports and imports.

      Visible items are those items which are recorded in the customs returns; for example, material goods exported and imported. If the value of visible exports is greater than that of visible imports, the balance of trade is favourable.

      If the value of visible imports is greater than that of visible exports the balance of trade is unfavourable; if the value of visible exports is equal to that of visible imports, the balance of trade is in equilibrium. Balance of trade is also known as merchandise account of exports and imports.

      Balance of payments, on the other hand, is a more comprehensive concept because it covers (a) visible items (i.e., balance of trade or merchandise account) and (b) invisible items.

      Invisible items are those items which are not recorded in the customs returns; for example, services (such as transpiration, banking, insurance, etc.), capital flows, purchase and sale of gold, etc.

      Thus, balance of payments is a broader term than balance of trade; balance of payments includes both visible as well as invisible items, whereas balance of trade includes only visible items.

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  8. its not helpful for anyone maybe

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