Types of Balances in BoP Class 12
Looking for Types of Balances in BoP. There are three types of balances in Balance of Payments statement.
Lets discuss it in detail.
Meaning of Balance
Balance means the difference between the sum of credit and the sum of debits, i.e. net credit. The BoP account records three balances.
- Balance of Trade
- Balance on Current account
- Balance of capital account
What is Balance of Trade
It is defined as equal to ‘exports of goods’ less ‘imports of goods’.
Balance of Trade = Exports of goods – Imports of goods.
Balance of trade can be positive or negative.
A positive balance means that exports of goods are greater than the imports of goods. It means that country has a trade surplus.
A negative balance means that exports of goods are less than the imports of goods. It means that country has a trade deficit.
What is Balance on Current Account
It is defined as equal to the difference between the sum of credits and the sum of debits on the current account.
Balance on current account = Sum of credits on current account – Sum of debits on current account
It can be negative and positive both.
When the sum of credit is greater than the sum of debits, It is positive.
when the sum of credits is less than the sum of debits, It is negative.
What is Balance on Capital Account
It is defined as the difference between the sum of credits and the sum of debits on a capital account.
Balance on Capital account = Sum of credits on capital account – Sum of debits on capital account
It can be positive and negative both.
If the sum of credits is greater than the sum of debits, It is positive.
When the sum of credits is less than the sum of debits, It is Negative. Negative Balance of Capital accounts popularly known as C.O.D (Current account deficit).
