Q.Distinguish between Balance of Trade and Balance of Payments.
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Start your 14-day free trial to unlock the full solution →The Balance of Trade (BOT) records only the value of a country's visible exports (physical merchandise sent abroad) against its visible imports (physical merchandise brought in) during a period. If exports exceed imports the balance is favourable/surplus; if imports exceed exports it is unfavourable/deficit.
The Balance of Payments (BOP) is a far more comprehensive, systematic statement covering all economic transactions between a country's residents and the rest of the world, not merchandise trade alone. It consists of a Current Account (visible trade i.e. the balance of trade, invisible trade such as services/insurance/tourism, investment income, and unilateral transfers) and a Capital Account (loans, foreign investment, and changes in foreign exchange reserves).
| Basis | Balance of Trade | Balance of Payments |
|---|---|---|
| Scope | Only goods (visible trade) | Goods, services, income, transfers and capital flows |
| Components | Exports of goods minus imports of goods | Current account + capital account |
| Nature | Narrower; one component of the current account | Broader, comprehensive |
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