Trade balance – in simple words


What is a trade balance?

Trade balance – trade balance – the difference between receipts and expenditures on foreign trade transactions of the country. A positive trade balance suggests that exports from the country exceed imports. Accordingly, the negative balance shows the inverse ratio of the number of imported and exported goods.

In simple words, the trade balance Is the difference between a country’s exports and imports.

What is a trade surplus?

Positive trade balance characterized by the predominance of exports of goods and services over imports and is an indicator of a high level of demand for the country’s goods in the world market, as well as sometimes an oversupply of goods produced.

What is a negative trade balance?

Negative trade balance indicates the widespread consumption of foreign goods.

It is generally accepted that a positive balance is better than a negative one, because in this case, the local producer is supported, and hence the country’s economy. It is the negative balance of external trade operations that can speak of an underdeveloped and uncompetitive economy. Most often, this situation leads to a depreciation of the national currency (devaluation), which happens as a result of the lack of ability to pay for import transactions.

But this phenomenon also has a positive side, namely the possibility of curbing inflation and maintaining a high standard of living. The United States of America and the United Kingdom are such examples.

A trade deficit is also called a trade deficit.

In the meantime, there is no need to worry about it. ”

Why does a trader need a trade balance in the financial markets?

The trade balance indicator is one of the few indicators that is capable of exerting not an indirect, but a direct, direct impact on fluctuations in the exchange rate of the national currency. This is explained as follows: the trade balance reflects the constant movement of financial resources between partner countries associated with the provision of certain goods and services under the agreement.

It is worth noting the existence of one paradox, which is that the reaction of the national currency exchange rate to the trade balance report is minimal, and all due to structural and technical reasons. That is, the report is characterized by a certain delay. The reason for this is the time required for its preparation and execution. Therefore, the dynamics of the exchange rate very rarely reflects the true flow of values ​​and material resources between trading partners.

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