Balance of Trade and Balance of Payments

Balance of Trade (BOT) records only the value of a country's visible/merchandise exports and imports — physical goods only. If exports exceed imports, the balance of trade is favourable (surplus); if imports exceed exports, it is unfavourable (deficit).

Balance of Payments (BOP) is a much broader, systematic record of all economic transactions between residents of a country and the rest of the world over a given period — it includes the balance of trade as one component, but also covers services, income flows, transfers, and capital movements. The BOP has two main accounts:

• Current Account — records trade in goods (visible trade/balance of trade) and services (invisible trade — e.g. software services, tourism, shipping), plus income received/paid (interest, dividends) and current transfers (like remittances sent home by workers abroad).
• Capital Account — records cross-border movements of capital: foreign investment (FDI and portfolio investment), external loans and borrowings, and changes in the country's foreign-exchange reserves. …