The balance of trade refers to the value of all the export and import of a nation on a half-yearly or yearly basis. This is one of the most important aspects of a nation’s economy as it contributes a lot to its GDP and economic growth. This is a very significant part of a nation’s international transactions and trade.
Measuring trade balance can be done easily bypassing all the goods and services through the customs office and. The current account is used to measure the net income of a nation earned on international assets.
The balance of trade or trade balance is the amount in total that has been achieved by a nation’s exportation of domestic products over the level of imported products. For example, country X has imported goods of 4 trillion from Country Y and have exported goods of 3.2 trillion. In this situation, country X has a trade balance or trade deficit of 800 billion. The countries with surplus gain lend money to the countries with a trade deficit to pay for their goods and services.
The formula for calculating the BOT is
Total import-Total export= Trade balance, or X – M = TB
Getting greater trade surplus is favorable for any nation and thus many nations often try to create policies and take measures that may appreciate export over import. The more a nation would sell over buying it would be able to achieve more capital and reduce the prices of goods and services. It also helps to increase the value of the money of a nation. Such situations are considered favorable for international trade and balance of trade. Nations, for maintaining such favorable trade balance try to motivate and boost more domestic productions. They even make many trade protective policies to support and protect the domestic production industries.
Trade deficits are considered as an unfavorable trade balance as it creates obstacles in the economic growth of the country with deficit balance. These countries mostly send raw materials for the production of different goods and pay the production charges to get the products back in the country. Such a condition does not help the nations to indulge in making value-added products for its domestic consumers. And thus the economy of such nations becomes dependent on the other nation’s commodities. Such conditions are so harmful to any nation and some nations take any measure to fight the trade deficit. One such step is mercantilism that is a type of economic nationalism in which the governments take several protectionist steps to save the domestic industries and other commercial firms.
For any nation, the most important thing is its economic growth which affects the living of the residents of the country. That is why nations always try to take serious measures to fight the trade deficit in foreign trade. If you want to understand the process in which the balance of payments or BOP is prepared to have a look at this template. This template is designed in the structure that might give the idea of the structure in which the trade payments can be summarized.
At the end of every trade session, nations prepare their sheet of the trade balance to specify the trade details of a nation with other nations. Its consequences change the price of several goods and services in the respective nation, either increased or decreased. If you are working on a similar project of preparing the balance sheet this template might help you to simplify your job. The sample has framed the balance records in detail and descriptive manner.
If you are working on defining the trade balance and real exchange rate with a foreign nation at the end of a trading year look at this template once. The template is framed with the description of trade balance and the real exchange rate that explains the process of the exercise. Referring to this template might help you to get different insights into the process.
Some different ways and formats are followed to prepare the trade balance in different nations that describe their trade details. The mentioned template follows a standard format to describe it with a proper illustration of the data of the trade. Certain trade balance record is very important for proper action and decision on the results of the trade. If you require to have some idea on its structure refer to this template that apart from describing it also represents it in a graphical chart.