Read the passage carefully and answer the questions based on the passage:
Accounts in Balance of Payments
The current account is the record of trade in goods and services and transfer payments. Trade in goods includes exports and imports of goods. Trade in services includes factor income and non-factor income transactions. Transfer payments are the receipts which the residents of a country get for free, without having to provide any goods or services in return. They could be given by the government or by private citizens living abroad. Capital Account records all international transactions of assets. The capital account is in balance when capital inflows are equal to capital outflows. The essence of international payments is that just like an individual who spends more than her income must finance the difference by selling assets or by borrowing, a country that has a deficit in its current account must finance it by selling assets or by borrowing abroad. Thus, any current account deficit must be financed by a capital account surplus, that is, a net capital inflow. Apart from the current and capital accounts, there is a third element in the balance of payments called errors and omissions.
When a country exports more goods than its imports, the balance of trade is considered to be?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Surplus Balance of Trade.
The balance of trade (BOT) is the difference between the value of a country’s exports and imports of goods. It is also called the trade balance. When a country exports more goods than it imports, it has a surplus BOT, or a trade surplus.
When it imports more than it exports, it has a deficit BOT. When exports and imports are equal, the BOT is in balance.
NCERT (2026-27): “Balance on Current Account … Balance of Trade (BOT) is the difference between the value of exports and value of imports of goods of a country in a given period of time. Export of goods is entered as a credit item in BOT, whereas import of goods is entered as a debit item in BOT. It is also known as Trade Balance. BOT is said to be in balance when exports of goods are equal to the imports of goods. Surplus BOT or Trade surplus will arise if country exports more goods than what it imports. Whereas, Deficit BOT or Trade deficit will arise if a country imports more goods than what it exports.…” |