This account keeps a record of both tangible and intangible items. ClearTax offers taxation & financial solutions to individuals, businesses, organizations & chartered accountants in India. ClearTax serves 1.5+ Million happy customers, 20000+ CAs & tax experts & 10000+ businesses across India. « The ClearIAS platform is highly user-friendly. It is quite easy to revise mock exams on the ClearIAS mobile app. The explanations are short, crisp and clear. A trusted mentor and pioneer in online training, Alex’s guidance, strategies, study-materials, and mock-exams have helped many aspirants to become IAS, IPS, and IFS officers.

If a has a fixed asset abroad, this borrowed amount is marked as a capital account outflow. However, the sale of that fixed asset would be considered a current account inflow . Also included are government-owned assets such as foreign reserves, gold, special drawing rights held with the International Monetary Fund, private assets held abroad, and direct foreign investment. Assets owned by foreigners, private and official, are also recorded in the financial account.


Before April 1990, the International Monetary Fund was the source of the trade balance. India’s trade balance showed a deficit of USD 11.3 billion in December 2019, down from USD 12.2 billion the month before. Balanced Economy – In national finances, it is when exports are equal to imports. Balance Sheet – A financial statement of an individual, company or organisation, which shows assets and liabilities at a specific date.

The favourable balance of trade indicates good economic condition of the country. Visible items are those, which are physically exported and imported like merchandise, gold, silver and other commodities. The invisible items are the services mutually rendered by shipping, insurance and banking companies, payment of interest and dividend, tourist spending and so on. The balance of trade refers to the difference between physical imports and exports of visible items only for a given period, say, a year. The Balance of Payments is the method countries use to monitor all international monetary transactions at a specific period of time.

Class 10

The wholesaler sells his products in hefty quantities to the retail trader and in turn, the retailer sells them to the customers for their use. This trade acts as the second link in the journey of a finished product from the producer to the customer. Long ago before the advent of money, do you wonder how people got their things? Well, they had a system in place called the barter system where if a person wants something but has another thing to give, he would find a person who has the item desired while requiring the item being offered. Tender period gives members of the contract the flexibility to make decisions till the time the contract expires. Both Assertion and Reason are true, but Reason is not the correct explanation of the Assertion .

products and services

Another factor that distinguishes between the balance of trade and balance of payment is that BOT is a major part of a BOP. In this case the Balance of Trade is positive, which means a country has exported more goods as compared to imports. The capital account can be broadly broken up into two categories namely, non-debt flows such as direct and portfolio investments, and debt flows such as external assistance, commercial borrowings, non-resident deposits, etc.

In simple terms, it is a systematic accounting balance sheet of the country and includes both debit and credit transactions. BoP is used to monitor all international monetary transactions. All trades conducted by both the private and public sectors are accounted for in the BoP in order to determine how much money is going in and out of the country. These accounts reflect every monetary transaction, i.e. commodities, services, and incomes during that period.

UPSC Notes

For example, surplus foreign currency can be used to fund investment in assets located overseas. Also, if a country has a current account deficit , it will borrow from abroad. When a country has a current account deficit that is financed by the capital account, the country is actually foregoing capital assets for more goods and services. If a country is borrowing money to fund its current account deficit, this would appear as an inflow of foreign capital in the BOP.

  • China, Korea, Taiwan, and Hong Kong are leading economies with high growth rates; they could be significant investment partners for India.
  • Might boost jobs and the economy, it can also push up prices and interest rates.
  • It means a lot of internally produced goods are being consumed all over the world.
  • All overseas capital transfers are noted in the capital account.
  • The accounts of the balance of payments consist of a current account and a capital account.

The balance of payments is said to be in surplus if autonomous receipts are greater than autonomous payments. The balance of payments surplus will be considered as an addition to official reserves . A country that has a trade deficit is sending a portion of its currency overseas. This can cause deflation, a state in which reduced demand leads to lower prices.

What is Balance of Trade (BOT)?

Another significant disadvantage of trade surpluses is that high net exports can represent a drain on national savings. When a nation experiences a large supply of goods, they can find themselves having difficulties maintaining their inflation rates. Because the economy is not being supported by traditional forms of economic growth, it then becomes more challenging to make economic adjustments in other areas. Significant changes in domestic prices could even lead to financial crises within the economy. May boost the economy’s employment and economic growth, but it can also raise prices and interest rates.

Since the goods in transfer are visible, they are called Visible Trade. Also, investment will increase the capital stock of the country which will led to increased output in the future. For the latest updates, news blogs, and articles related to micro, small and medium businesses , business tips, income tax, GST, salary, and accounting. Bank Run – Lots of sudden and heavy cash withdrawals at the same time from a bank or banks, because customers believe the banks may become insolvent. Bank Loan – A loan made by a bank to an individual, company, etc., for a fixed term, to be repaid with interest. Bangkok Agreement – A preferential trade agreement among developing countries of Asia and the Pacific.

  • The correct answer is B and C only because both are current account transactions and the remaining others are capital account transactions.
  • From a balance of international payments point of view, a surplus on the current account would allow a deficit to be run on the capital account.
  • The Balance of Payment combines every private and public investment to find out the money inflow and outflow in an economy over a specific period.

The balance of payments summarizes an economy’s international economic dealings. The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions.

(Export, Import of Goods)

In this case India has a negative BoT, which means that it has imported more goods rather than exporting. India in the year 2018 exported 1 billion worth of goods and imported 1.7 billion worth of goods. Efiling Income Tax Returns is made easy with ClearTax platform. Just upload your form 16, claim your deductions and get your acknowledgment number online. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources.

economic growth

This refers to the acquisition or disposal of non-financial assets and non-produced assets, which are needed for production but have not been produced, like a mine used for the extraction of diamonds. • Receipts from income-generating assets such as stocks are also recorded in the current account. The last component of the current account is unilateral transfers.

Trade Balance – Notes

Countries with current account deficits can run into difficulties. If the deficit is large and the economy is not able to attract enough inflows of foreign investment, then their currency reserves will dwindle. The sum of the current account and capital account indicates the overall balance, which could either be in surplus or in deficit.

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In case payments and receipts do not tally then the balance will be presented as errors and omissions. USA in the year 2018 Exported 2 billion worth of goods and imported 1.5 billion of goods. CAs, experts and businesses can get GST ready with ClearTax GST software & certification course. Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner.

balance of trade means is a combination of accounts that shows the commercial transactions concluded by a country within a specific period with other countries. The balance of payments includes both the current account and capital account. These transactions consist of transfer payments as well as the export and import of products, services, and financial assets . Frequently tends to strengthen a nation’s currency compared to other currencies, affecting currency exchange rates. The number of a country’s products and services relative to those of other nations and other market conditions will determine this, though.