Balance of trade
BOT = exports of goods - imports of goods
The narrow measure, visible items only. Use it as a sub-total on the way to the current account balance, never as the headline answer.
- Exports of goods
- Merchandise sold abroad, a credit
- Imports of goods
- Merchandise bought from abroad, a debit
Current account balance
CAB = BOT + net invisibles
net invisibles = net services + net transfers
Whenever a question gives goods, services and transfers. This is the measure to judge an external position on, not the balance of trade.
- Net services
- Factor income (interest, dividends) plus non-factor services (IT, tourism, banking, insurance), net
- Net transfers
- Remittances, gifts and foreign aid, net
BoP identity
Current account + capital account + errors and omissions
= change in foreign exchange reserves
To find the reserve movement, or to find a missing item when the reserve movement is given. Keep every sign; errors and omissions can be negative.
- Change in reserves
- Positive means an accretion and a BoP surplus; negative means the RBI sold forex to cover a deficit
- Errors and omissions
- The statistical residual that closes an imperfectly measured account
Invisibles coverage ratio
Coverage % = net invisibles / size of merchandise deficit x 100
To say in one number how much of a goods deficit the services and remittance surplus absorbs. The denominator is the deficit, not imports.
- Net invisibles
- Net services plus net transfers
- Merchandise deficit
- Imports of goods minus exports of goods, taken as a positive size