Scribd
Upload
361 views

Basis of Difference Balance of Trade (BOT)

The document discusses the difference between Balance of Trade (BOT) and Balance of Payments (BOP). [1] BOT is defined as the difference between a country's exports and imports of goods and services, while BOP includes financial capital transfers between a country and other nations in addition to trade. [2] A favorable BOT means exports are greater than imports, while a favorable BOP occurs when current account surpluses offset capital account deficits from loan payments. [3] Key factors that affect BOT include production costs, material availability, exchange rates and domestic prices, while BOP is influenced by foreign lenders' conditions, government economic policy, and the same BOT factors.

Uploaded by

johann_747
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
361 views

Basis of Difference Balance of Trade (BOT)

The document discusses the difference between Balance of Trade (BOT) and Balance of Payments (BOP). [1] BOT is defined as the difference between a country's exports and imports of goods and services, while BOP includes financial capital transfers between a country and other nations in addition to trade. [2] A favorable BOT means exports are greater than imports, while a favorable BOP occurs when current account surpluses offset capital account deficits from loan payments. [3] Key factors that affect BOT include production costs, material availability, exchange rates and domestic prices, while BOP is influenced by foreign lenders' conditions, government economic policy, and the same BOT factors.

Uploaded by

johann_747
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 3

Basis of Difference

Balance of Trade (BOT)



Balance of Payment (BOP)

1. Definition



Balance of trade may be
defined as difference between
export and import ofgoods and
services.

Balance of payment is 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 transfer.

2. Formula





BOT = Net Earning on
Export - Net payment for
imports




BOP = BOT + (Net Earning
on foreign investment - payment
made to foreign investors) + Cash
Transfer + Capital Account +or -
Balancing Item
or
BOP =Current Account + Capital
Account + or - Balancing item (
Errors and omissions)
3. Favourable or
Unfavourable






If export is more than
import, at that time, BOT will
be favourable. If import is
more than export, at that time,
BOT will be unfavourable.



Balance of Payment will be
favourable, if you have surplus in
current account for paying your all
past loans inyour capital account.
Balance of payment will be
unfavourable, if you have current
account deficit and you took more
loan from foreigners. After this, you
have to
pay high interest on extra loan and
this will make your BOP
unfavourable.

4. Solution of
Unfavourable
Problem
To Buy goods and services
from domestic country.
To stop taking of loan
from foreign countries.

5. Factors





Following are main factors
which affect BOT
a) cost of production
b) availability of raw materials
c) Exchange rate
d) Prices of goods
manufactured at home

Following are main factors
which affect BOP
a) Conditions of foreign lenders.
b) Economic policy of Govt.
c) all the factors of BOT
6. Meaning of Debit
and
Credit





If you seeRBI' Overall
balance of payment report, it
shows debitand credit of
current account.
Credit means total export of
different goods and services
and debit means total import
of goods and services in
current account.

Credit means to receipt and earning
both current and capital account and
debit means total outflow of cash
both current and capital account and
difference between debit and credit
will be net balance of payment.












A countrys Balance of Payments reveals various aspects of a countrys
international economic position.

It presents the international financial position of the country.

It helps the government in taking decisions on monetary and fiscal policies
on the one hand, and on external trade and payments issues on the other.
In the case of a developing country, the balance of payments shows the
extent of dependence of the countrys economic development on the
financial assistance by the developed countries.

The greatest importance of balance of payments lies in its serving as an
indicator of changing international economic position of a country.

The balance of payments is the economic barometer which can be used to
appraise a nations short-term international economic prospects, to
evaluate the degree of its international solvency, and to determine the
appropriateness of the exchange rate of countrys currency.

The significance of balance of payments lies in the fact that it provides vital
information to understand a countrys economic dealings with other
countries.

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy