A positive balance of trade means that a country is exporting more in monetary terms than it is importing while a negative or unfavourable balance of trade means that a country is importing more in monetary terms than it is exporting.
WHAT IS BALANCE OF TRADE
Balance of trade: Balance of trade refers to the total value of goods sold and bought by a country during a given period, usually a year. When visible exports equal visible imports in monetary terms, we have balance of trade. A positive balance of trade means that a country is exporting more in monetary terms than it is importing while a negative or unfavourable balance of trade means that a country is importing more in monetary terms than it is exporting.
what is Balance of Payment:
Balance of payment may be define as a statement or record showing the relationship between a country’s total payment to other countries and its total receipts from them in a year.
A country s’ balance of payment c be grouped into three parts namely cu” account, capital account and monetary movement account.
- Current Account: Current account is composed of receipts and payments for visible and invisible services. Invisible services are insurance, banking, transport, interest payment and tourism while visible goods are automobiles, cocoa, cotton and crude oil.
- Capital Account: Capital account is made up of the inflow and outflow capital both in long and short term consists of capital movement in the form of investments, loans and grants.
- Monetary movement account: account shows how the balance of both current and capital accounts are settled.
- Favourable balance of payment: Favourable balance of payment occurs when the receipts from invisible and visible export trade greater than payments to other countries invisible and visible imports. A credit balance can be used to increase investment abroad or to add to a country’s gold reserve.
- Unfavourable balance of payment: Unfavourable balance of payment is used for debit balance in the balance of payments. It means that payments on visible and invisible import is greater than receipts on invisible exports. It can be referred to as adverse or deficit balance. For more discussion on balance of payment, see previous chapter book.
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