Balance of Trade (BOT)

Balance of Trade

Meaning

Balance of trade denotes the difference between the value of import and the value of export during a year.  If  the export of a country exceeds its imports, it shows favourable balance of trade. If the import exceeds the exports, it shows unfavorable balance of trade.

Difference Between Balance of Payments and Balance of Trade

Points of difference between balance of trade and balance of payments are briefly explained in the following Table.

Structure of Balance of Payments

The balance of payments consists of four components namely, current account. Capital account, They are highlighted briefly.

Current Account

The current account balance includes two items

·           Visible trade - Import and export of goods

·           Invisible trade - Invisible service items like, banking, shipping, insurance, travel and transportation

CAPITAL ACCOUNT

Capital account consists of three components

1.        Private Capital

2.        Banking Capital

3.        Official Capital

1. Private Capital

Private capital consists of foreign investments, long term loan and foreign currency deposits

2. Banking Capital

Banking capital includes movement into external financial asset and liabilities commercial and co-operative banks authorized to dealing in foreign exchange

3. Official Capital

It includes RBI’s holdings of foreign currency and special drawing rights (SDR) held by the Government