Friday, 20 September 2019

Difference between Balance of Trade and Balance of Payment - Class 12

Difference between Balance of Trade and Balance of Payment is as follows-

(1) Balance of Trade records those economic transactions with the rest of the world which are related to trade of goods only. Transactions pertaining to services are not included in Balance of Trade.

Balance of Payment records all economic transactions with the rest of the world.

(2) Balance of Trade account does not record transactions of capital nature. Balance of Payment account records transactions of capital nature also.

(3) Balance of trade is a narrow concept as it is just a component of the balance of payment. Balance of trade is a part of the balance of payment. Balance of payment is a wider concept. It includes Balance of Trade. Balance of Trade is a part of the balance of payments.

(4) Balance of trade is only a partial record and hence it is not a true indicator of economic relations with other countries. Balance of payment is a complete record of all economic transactions with other countries and hence it provides a true picture of economic relations with other countries. In the balance of payment, we also record service transactions and not only the transactions of goods. For example, borrowings from abroad will not be a part of the balance of trade but it will be a part of the balance of payment as this is a capital transaction and capital transactions are not included in the balance of trade, but they are included in the balance of payments

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