Question

Distinguish balance of payment and balance of trade

Answer 1

	Balance of Payment	Balance of Trade
1. Meaning	It is a systematic record of all economic transactions happened between the resident of one country	Balance of trade is statement showing the net effect of export and import of a country
2. Nature of Transactions recorded	It records both the transactions relating to goods and services.	It records both the transactions relating to merchandise, i.e. goods and transactions.
3. Capital Transactions	It records capital transactions	It does not record capital transactions
4. Structure	It includes balance of trade. balance of services, balance of unilateral transfer and balance of capital transactions	It is part of current account of BOP
5. Net Position	It always remains balanced in the sense that receipt side s made equal to payment side	It may be at favorable or unfavourable or in equilibrium state.
6. Indicator Economic Status	It is true indicator of economic performance of an economy	It is not true indicator of economic prosperity or economic relations of country.
7. Correcting Unfavourableness	Unfavorable balance of payment leads to deficit in balance of payment situation.	Unfavorable balance of trade can be converted into favorable balance of payment.