Question

Give the meanings of Balance of Trade and Balance on Current Account of Balance of Payments Accounts

Answer 1

A balance of trade refers to the balance which occurs on account of export and import of visible items only. Export and import of services and expenditure by tourists are not included in the balance of trade. A balance of payments on current account is a statement of actual receipts and payments in the short period. It includes the value of imports and exports of both visible and invisible items, as well as the record of unilateral transfers. An import of visible items leads to an outward flow of foreign exchange and the export of visible items leads to an inward flow of foreign exchange. Similarly, the import of services leads to an outward flow of foreign exchange and the export of services leads to an inward flow of foreign exchange. Unilateral transfers are also known as transfers for free such as gifts and grants from foreign governments.