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Food and Agricultural Produce
From United Kingdom
To United States of America
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May 04, 2020
What is the difference between balance of trade and balance of payments?

3 answers

May 08, 2020
Good day Teresa! I will try to give you a more detailed info on the relationship rather than the differences between Balance of Trade (BOT) and Balance of Payments (BOP).(1).The balance of trade is a narrow concept, while the balance of payment is a wider concept. In fact, the balance of payments includes in its structure is the notion of the balance of trade. (2).Balance of trade refers to only the value of imports and exports of goods, like visible items only. On the other hand, the balance of payments is more compressive in scope and it covers the total debits and credits of all items visible- as well as invisible. It includes all international economic transactions and items such as Merchandise trade, services, banking, insurance, capital flows, gold buying, and selling, etc. (3).BOT is only a partial study of the total economic transactions in international trade (IT) it has little analytical significance. On the other hand, the balance of payments provides a complete record of international economic transactions/pictures of international economic relations. (4).The balance of trade takes into account only the payments and receipts on the account of visible exports and imports. (5).The balance of trade account does not record transactions of capital nature, whereas the BOP account records transaction nature. (6).The balance of trade account is a part of the current account of the balance of payment, but the balance of payment account is more comprehensive. (7).In the accounting sense, BOT may be deficit or surplus. It may thus be imbalanced. But the balance of payments as a whole must always balance. For that reason, there is an item like “Errors and Omission” in its structure. (8).BOT is useful in economic calculations, while BOP is more useful in economic calculation. (9).The exchange rate is affected by the balance of payment, not by the balance of trade.
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Anna G.
May 08, 2020
Hi Teresa, I would say that the Balance of Trade is a difference between the country's imports and exports for a given period. It is one of the component of current account of Balance of Payment. Balance of Payment is all the economic transaction that happens between residents of country and the rest of the world. It can be between government, individual or corporate. BoP transaction consists of imports and exports of goods, services and capital as well as transfer payments, such as foreign aid and remittances.
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Bjorg D.
May 05, 2020
Hello Teresa! Balance of payments is the overall record of all economic transactions of a country with the rest of the world.Balance of trade is the difference in the value of exports and imports of only visible items. Balance of trade includes imports and exports of goods alone i.e., visible items. On the other hand, balance of payments includes: - Imports and exports of goods; - Imports and exports of services; - Capital transfers. Balance of trade of a country can be favorable or unfavorable but BoP always balances. BoP is important than balance of trade because BoP offers a comprehensive picture of the country's economic status.
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