Basis of Difference
|
Balance of Trade(BoT)
|
Balance of Payment(BoP)
|
1. Definition
|
The difference between the value of goods and
services exported out of a country and the value of goods and services
imported into the country.
|
Flow of cash between domestic country and all other foreign
countries.
It includes not only import and export of goods and services but also includes financial capital transfers. |
2. How is it calculated?
|
BoT= Net earnings on exports – Net payment made for imports.
|
BoP= BoT + Net earnings on foreign investment + Cash Transfers +
Capital Account.
OR
BoP= Current Account + Capital Account
|
3. When is it considered as favorable or unfavorable?
|
·
If export is more than import, at that time,
BoT will be favorable.
·
If import is more than export, at that time,
BoT will be unfavorable.
|
·
BoP will be favorable, if the country has surplus
in current account for paying all past loans in the capital account.
·
BoP will be unfavorable if the country has
current account deficit and it took more loan from foreigners.
|
4. Solution of being unfavorable?
|
To Buy goods from domestic market as far as possible.
|
To stop or reduce taking loans from foreign countries.
|
Posts
