ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The balance of trade is a part of the balance of payments and is represented in the current account, which also includes income from investments and transfers such as foreign aid and gifts. The capital account, which is another part of the balance of payments, includes financial capital and financial transfers.

Detailed explanation-2: -Current account measures the nation’s earnings and spendings abroad and it consists of the balance of trade, net primary income or factor income (earnings on foreign investments minus payments made to foreign investors) and net unilateral transfers, that have taken place over a given period of time.

Detailed explanation-3: -There are three components to the current account – the ‘trade balance’, ‘primary income balance’ and ‘secondary income balance’. In economic analysis or commentary, most attention is usually given to the trade balance, which records the difference between the value of our exports and imports of goods and services.

Detailed explanation-4: -Balance of trade (BoT) is the difference that is obtained from the export and import of goods. Balance of payments (BoP) is the difference between the inflow and outflow of foreign exchange. Type of transactions included. Transactions related to goods are included in BoT.

Detailed explanation-5: -Note: Changes in the foreign exchange reserves are not included in the current account of the BoP. The foreign exchange reserves are the financial assets of the government-held in the central bank. A change in reserves serves as the financing item in India’s BOP.