Q.Distinguish between Balance of Trade and Balance of Payments.

The balance of trade covers only merchandise (visible) trade, while the balance of payments is a much wider record of all of a country's economic transactions with the rest of the world.

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).

A common confusion is treating BOT and BOP as synonyms because both concern a country's trade position. Students should be clear that BOP is the umbrella concep …