Balance of Trade and Balance of payment.

Balance of Trade refers to the net difference value of Export and Import of commodities from/into a country. The movement of goods or commodities between countries is known as the visible trade. Therefore balance of trade refers to the net balance of the visible trade of a country. When the value of the export goods exceed value of import goods for a given period of time, there is net gain of foreign exchange to the country and the balance of trade is said to be favourable or surplus or positive. If the value of import goods exceeds the value of export goods within a period then it is called negative or deficit or unfavourable.

Balance of Payment is a statement that contain details of all the international economic transactions both visible and invisible items of a country within a given period of time, usually a year. Here visible items includes export import of commodities/goods and visible items are shipping, banking, insurance, tourist, gift, interest on investment, technical know how, consultancy etc. The balance arrived at taking into account both the visible and invisible items in foreign trade is known as Balance of payment. Balance of payment includes Balance of trade and other invisible items of foreign trade. As in the case of Balance of trade, the total amounts payable and receivable do not balance and the balance of payments for a given period ends up in favourable/surplus/positive or unfavourable/deficit/negative.