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Trade Balance

By:

Crown Forex

2008-11-01

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Previous: -57.8 Billion

Forecast: -59.5 Billion

Definition
The difference between funds received by a country when exporting merchandise and the funds paid for importing merchandise. The balance of trade is a major part of the current accounts portion of the balance of payments. Balance of trade surplus results if exports exceed imports, commonly termed a favorable balance of trade, and a balance of trade deficit exists if imports exceed exports, analogously termed an unfavorable balance of trade. The "favorable" and "unfavorable" normative connotations attached to the balance of trade rests with the presumption that a nation is "better off" when it exports more than it imports, which is not necessarily true.

General Effect
The difference between the value of goods and services exported out of a country and the value of goods and services imported into the country. The balance of trade is the official term for net exports that makes up the balance of payments.

The balance of trade can be a "favorable" surplus (exports exceed imports) or an "unfavorable" deficit (imports exceed exports). In other words, it is total imports subtracted from total exports. The official balance of trade is separated into the balance of merchandise trade for tangible goods and the balance of services.

The net exports can be either positive or negative. If imports exceed exports than there is a trade deficit. If it’s the other way around, there is trade surplus.

Balance of Trade Surplus: Exports exceeds imports

Balance of Trade Deficit: Imports exceeds exports

A balance of trade surplus is good for the economy because this shows that there is more production and the outflow is more than the inflow. This results to increasing stock prices because people will demand more of the stocks with higher returns. In order to pay for the exports, foreign importers will have to buy more of the domestic currency which will increase its value. However, if the value of the currency keeps on increasing, it will reach a limit where it will become too expensive to purchase and therefore they will not be able to purchase the exports.

A trade deficit means that the economy is hindering because the inflow is more than the outflow which means that domestic production is not doing well. If the demand form domestic products by locals or foreigners are decreasing then there will be less production and the unemployment rate will increase which is bad for the overall economy. In addition to that, the value of the currency will demolish because the demand on it is basically declining.

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CROWN FOREX SA, located at St-Hubert 38, 2854 Bassecourt, P.o.box 247, Switzerland, is fully regulated as a financial intermediary under Swiss federal law on the prevention of money laundering (LBA, MLA). Our company is also affiliated with the ARIF association, thus overseen by the Swiss federal ...

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