A trade account records the value of a country’s exports and imports, and the balance is the difference between them. Before you revise the terms, check your exam year on the Cambridge Economics 0455 syllabus page, because the exact list and wording of components can change between versions.
This is the closing skill in international trade and exchange rates. It uses the conversion and trade ideas from the earlier lessons, such as the effects covered in tracing effects on importers and exporters.
What are the components, and what should I check?
The commonly taught components are:
- Exports of goods (visible exports): physical goods sold abroad.
- Imports of goods (visible imports): physical goods bought from abroad.
- Exports of services (invisible exports): for example, foreign visitors paying for hotels or transport in the home country.
- Imports of services (invisible imports): for example, a home firm paying a foreign firm for insurance.
- Balance of trade in goods: exports of goods minus imports of goods.
- Balance of trade in services: exports of services minus imports of services.
Some courses also include income flows and transfers to reach the current account balance. Check on the syllabus page which of these your exam year uses, and use the terms it uses.
Worked example
Doravia’s figures for one year, in millions of dora:
| Item | Value |
|---|---|
| Exports of goods | 520 |
| Imports of goods | 610 |
| Exports of services | 180 |
| Imports of services | 120 |
Step 1, goods balance: 520 − 610 = −90 (a deficit of 90).
Step 2, services balance: 180 − 120 = +60 (a surplus of 60).
Step 3, goods and services together: −90 + 60 = −30, so a deficit of 30 million dora.
Step 4, check by totals: total exports = 520 + 180 = 700. Total imports = 610 + 120 = 730. The difference 700 − 730 = −30, which matches.
If your syllabus year includes income and transfers: suppose net income is +25 and net transfers are −10. The current account balance is −30 + 25 − 10 = −15.
The mistake to watch for
The usual slip is subtracting the wrong way round, or calling a negative figure a “surplus”.
Mistaken answer: “520 − 610 = 90, so Doravia has a surplus of 90 in goods.”
The student dropped the minus sign. Imports exceed exports, so the balance is negative.
The correction is to always write exports minus imports, keep the sign, and then label it. A negative balance is a deficit and a positive balance is a surplus.
Check yourself
1. Exports of goods are 300 and imports of goods are 340 (millions). Find the balance of trade in goods.
Show answer
300 − 340 = −40, a deficit of 40 million.
2. Goods exports 410, goods imports 380, services exports 90, services imports 130. Find the goods balance, the services balance and the total.
Show answer
Goods: 410 − 380 = +30. Services: 90 − 130 = −40. Total: +30 − 40 = −10. Check: exports 500, imports 510, difference −10.
3. Classify each as a goods import, goods export, services import or services export from Doravia’s view: (a) tourists from Kesland stay in Doravian hotels, (b) a Doravian firm buys Kesland tea, (c) a Doravian company pays a Kesland shipping firm.
Show answer
(a) Services export, because a foreign visitor pays money into Doravia. (b) Goods import. (c) Services import.
Where this leads next
Finish the module with the international trade and exchange rates practice set, which mixes all five skills. The ratios tool helps you compare balances over time.
If the details of your syllabus version feel uncertain, our teachers can build a short list of what your exam year expects through online one-to-one Economics tuition.