Distinguish between Balance of Payments and Balance of Trade.
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Solution and Explanation
| Basis | Balance of Payments (BoP) |
|---|---|
| Definition | It is a comprehensive record of all economic transactions (both visible and invisible) of a country with the rest of the world in a given time period. |
| Components | Includes Current Account, Capital Account, and Errors & Omissions. |
| Nature of Transactions | Covers both visible (goods) and invisible (services, transfers, etc.) transactions. |
| Balance Status | It always balances in accounting terms, though individual accounts may show surplus or deficit. |
| Basis | Balance of Trade (BoT) |
|---|---|
| Definition | It refers to the difference between the value of exports and imports of goods only. |
| Components | Includes only visible items (goods). |
| Nature of Transactions | Does not include services or capital transfers. |
| Balance Status | Can show surplus or deficit independently. |
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