Distinguish between Balance of Payment and Balance of Trade.
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Solution and Explanation
The difference between Balance of Payment (BoP) and Balance of Trade (BoT) is explained as follows:
| Balance of Payment (BoP) | Balance of Trade (BoT) |
|---|---|
| BoP is a comprehensive record of all economic transactions between a country and the rest of the world during a given period (usually one year). | BoT is a part of the BoP and records only the visible trade, i.e., exports and imports of goods. |
| It includes visible, invisible, and capital transfers such as services, investments, remittances, etc. | It includes only visible items like export and import of goods. |
| BoP consists of two main accounts: the Current Account and the Capital Account. | BoT is a part of the Current Account. |
| BoP may be balanced, in surplus, or deficit depending on the total of all international transactions. | BoT shows surplus when exports > imports and deficit when imports > exports. |
| BoP is a broader concept and reflects the overall economic position of the country in the global market. | BoT is a narrower concept and indicates only merchandise trade performance. |
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