TYPES OF BOP

Balance Of Payments and Its Types

Balance: It means difference between the sum of credits and sum of debits. The BOP account records three balances:
(a) Balance of trade
(b) Balance on current account
(c) Balance on capital account

1. Balance of trade: The term “balance of trade” denotes the difference between the exports and imports of goods in a country. Balance of trade refers to the visible items only. It is the difference between the value of merchandise (goods) exports and imports.

Balance of Trade = Export of visible goods – Import of visible goods.

BOT can be surplus or deficit:

• Surplus BOT: If a country exports more than what it imports, then the BOT is said to be in surplus that is favourable for the country.
• Deficit BOT: If import of goods exceeds the export of goods, then the country is said to have a deficit BOT that is unfavourable for the country.

2. Balance on current account: It is the difference between sum of credits and sum of debits on current account.

Balance on Current Account = Sum of credits on current account – Sum of debits on current account

3. Balance on capital account: It is the difference between sum of credits and sum of debits on capital account.

Balance on capital account = Sum of credits on capital account – Sum of debits on capital account