The difference between the value of exports and the value of imports…

The correct answer is Option (4) → Balance of Trade

A country sells goods abroad and buys goods from abroad. Set the value of exports of goods against the value of imports of goods over a period, and the difference is the balance of trade (BOT), also called the trade balance. Exports enter as credit items and imports as debit items:

• when exports of goods exceed imports there is a trade surplus;

• when imports exceed exports there is a trade deficit.

The balance of trade is one of the two parts of the balance on current account; the other is the balance on invisibles.

Why the other options are incorrect

• Option (1) Balance of Invisibles — Incorrect. The balance on invisibles is the difference between exports and imports of services, together with income and transfers; it leaves out goods, the very items the question names.

• Option (2) Balance of Payments — Incorrect. The balance of payments records all the transactions of a country with the rest of the world, in goods, services and assets, so it is far wider than trade in goods.

• Option (3) Capital Account — Incorrect. The capital account records transactions in assets, such as foreign investment and borrowing, and not the export and import of goods.

Note: A same/similar question was asked in CUET (UG) in the papers below.

* A similar question.