The balance of trade is the difference between the monetary value of exports and imports of output in an economy over a certain period. It is the relationship between a nation’s imports and exports. A positive or favorable trade is known as a trade surplus if it consists of exporting more than is imported; a negative or unfavorable balance is referred to as a trade deficit or, informally, borrowed prosperity, living beyond a nation’s means, or a trade gap. The balance of trade is sometimes divided into a good and a service balance.

The Balance of trade is the largest component of a country’s balance of payments. Debit items include imports, foreign aid, domestic spending abroad and domestic investments abroad. Credit items include exports, foreign spending in the domestic economy and foreign investments in the domestic economy. A country has a trade deficit if it imports more than it exports; the opposite scenario is a trade surplus.

Must Read: Balance of Payments

The balance of trade forms part of the current account, which includes other transactions such as income from the international investment position as well as international aid. If the current account is in surplus, the country’s net international asset position increases correspondingly. Equally, a deficit decreases the net international asset position.

The trade balance is identical to the difference between a country’s output and its domestic demand (the difference between what goods a country produces and how many goods it buys from abroad; this does not include money re-spent on foreign stock, nor does it factor in the concept of importing goods to produce for the domestic market).

Factors that can affect the balance of trade include:

• The cost of production (land, labour, capital, taxes, incentives, etc.) in the exporting economy vis-à-visthose in the importing economy;
• The cost and availability of raw materials, intermediate goods, and other inputs;
• Exchange rate movements;
• Multilateral, bilateral and unilateral taxes or restrictions on trade;
• Non-tariff barriers such as environmental, health or safety standards;
• The availability of adequate foreign exchange with which to pay for imports; and
• Prices of goods manufactured at home (influenced by the responsiveness of supply

Also Read: Economics: The Basics

Difference Between Balance of Trade and Balance of Payment

The Balance of Trade includes only visible imports and exports, i.e. imports and exports of merchandise, the difference in imports and exports is called Balance of Trade. If imports are more than exports, it is the unfavourable balance trade. If exports exceed imports, it is the favourable balance trade. The Balance of Payments includes all those visible and invisible items exported from and imported into the country in addition to exports and imports of merchandise.

The Balance of Trade includes revenues received or paid on account of imports and exports of merchandise. It shows only revenue items. The Balance of Payments includes all revenue and capital items whether visible or non-visible. the Balance of Trade thus forms a part of Balance of Payments.

The Balance of Trade can be favourable or unfavourable. If imports are more than exports, it is the unfavourable balance of trade. If exports exceed imports, it is the favourable balance of trade.The  Balance of Payments is always balanced just like Trading and Profit and Loss A/c of a business.

In the case of Balance of Trade, there is no deficit or surplus balance. The balance shows favourable or non-favourable. So, external assistance is not required. In the case of Balance of Payments, any balance, deficit or surplus is to be financed by the external source or assistance or be utilised.

Don’ Miss:

The Goods and Services Tax (GST)

Elements of Economics

Monetary Policy

For the first time in the history of Budgeting in India the Union and the Railway Budgets have extremely obvious about “ budget go green ” that has found exhibition in a number of steps in keeping with the Swacchh Bharat Campaign  launched by the Prime Minister Shri Narendra Modi

Rail Budget Go Green

With a slew of budget go green measures, some of which are a follow up what had been introduced in the past, the Rail Budget 2016-17, presented by the Rail Minister, set the ball rolling. Some of the new concepts are designed to make the Railways enter budget go green culture in future.

According to the Rail Budget 2016-17, for advertisement billboards and all new lighting in non- traction areas, LED luminaire are going to be used to reduce energy consumption by 10-15 per cent. It has been pointed out that since LED lamps are recyclable and have a much longer life- span, having a low maintenance cost and consuming 75% less energy than the normal incandescent lighting, the move is certainly going to result in a lower carbon footprint.

Must Read: Union Budget of India 2016-17 & Key Features

All establishments with rooftop areas of more than 200 square meters are going to be provided with rainwater harvesting systems and all over the girder bridges are to be set up environment friendly composite sleepers which are made of recycled plastic waste. Apart from this, wind power plants of 132.5 MW and solar plants of a total 100 MW capacity are to be set up.

All production units of the Railways, at least one workshop in every Zone, are going to be transformed into budget go green industrial unit that would certainly assist in saving a great deal of energy and water.

The Railways has made its intention quite clear that it is going to promote floriculture and horticulture along the railway tracks; begin waste separation at railway stations; propagate awareness campaigns for cleanliness apart from setting up storage facilities on vacant land for fishermen and farmers.

In one of its most significant budget go green the Railways has decided to install 30,000 new bio- toilets in trains. For women and differently abled persons portable structures with bio-toilets are also to be set up.

Now passengers, courtesy Indian Railways, can make a request for ‘cleaning of berths and coaches’ through their mobile phones. And in a most important step with an intention to bring down the generation of paper to save trees the Rail Ministry has put in place a pilot scheme for sale of tickets through hand –hold terminals, e- ticketing for foreign debit/credit cards, bar coded tickets,scanners and access control.

Read Also: Salient Features of Railway Budget 2016

Union Budget Go Green

In order to clamp down on pollution and pollutants, the Union Budget 2016-17 has come out with several bold measures that are meant to discourage the use of private cars, especially diesel- operated cars. To accomplish this move an infrastructure cess has been imposed on all cars- small petrol, LPG, and CNG cars will have to pay 1 per cent, diesel cars 2.5 per cent, and SUVs and higher engine capacity vehicles have to pay 4 per cent. Based on the polluter pays principle this certainly is a giant step ahead.

The Budget go green has also doubled the Clean Energy Cess on lignite and coal from Rs 200 per tonne to Rs 400 per tonne. This can be claimed as a welcome step as every awared citizen knows how polluting coal and generation of thermal power can be.

The budget go green has also made it clear that the Government intends to encourage organic farming through the Paramparagat Krishi Vikas Yojana  for which it has allotted more than Rs 400 crore.

The Government also aims to develop an organic value chain in the northeast in order to provide a fillip to the marketing of traditional organic products. This is going to help conserve water and forests because organic methods of farming minimize the use of water in comparison with the modern high yielding methods.

Conclusion

In all these steps, one can find a connection and coherence that has never been witnessed before. When the Railways talk of budget go green workshops, bio- toilets and budget go green production units among other budget go green measures, and the Finance Ministry plans of organic farming, renewable power and food security we can certainly say that the Government wants the various ministries to work in tandem with each other to accomplish the goal of making the country usher into the era of budget go green culture.      

Read Also: Membership of State Legislature

The history of nationalised Banks in India dates back to the year 1955 when the Imperial Bank of India was nationalized and re-christened as State Bank of India (under the SBI Act, 1955). Later on July 19, 1960, the 7 subsidiaries of SBI  (now merged into SBI) viz. State Bank of Hyderabad (SBH), State Bank of Indore, State Bank of Saurashtra (SBS), State Bank of Mysore (SBM), State Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala (SBP), and State Bank of Travancore (SBT) were also nationalized with deposits more than 200 crores.

Nationalised Banks in India Before Merger

There were 26 Nationalized Banks in India at before mega merger of banks. They were as follows:

(1) Allahabad Bank
(2) Andhra Bank
(3) Bank of Baroda
(4) Bank of India
(5) Bank of Maharashtra
(6)  Canara Bank
(7) Central Bank of India
(8) Corporation Bank
(9) Dena Bank
(10) IDBI Bank Ltd.
(11) Indian Bank
(12) Indian Overseas Bank
(13) Oriental Bank of Commerce
(14) Punjab & Sind Bank
(15) Punjab National Bank
(16) Syndicate Bank
(17) UCO Bank
(18) Union Bank of India
(19) United Bank of India
(20) Vijaya Bank

State Bank Group

(1) State Bank of Bikaner & Jaipur
(2) State Bank of Hyderabad
(3) State Bank of India
(4) State Bank of Mysore
(5) State Bank of Patiala
(6) State Bank of Travancore
(7) State Bank of Indore has merged with SBI from August 26, 2010.

Read Also:

• Difference between State Bank of India and Nationalised Banks
• Information on Nationalised Banks
  
• Banks and their Headquarters

Let’s have a quick look on some of the terminologies used in banking and finance sector. 

• Accrued interest: Interest due from issue date or from the last coupon payment date to the settlement date. Accrued interest on bonds must be added to their purchase price.

• Arbitrage: Buying a financial instrument in one market in order to sell the same instrument at a higher price in another market.

• Ask Price: The lowest price at which a dealer is willing to sell a given security.

• Asset-Backed Securities (ABS): A type of security that is backed by a pool of bank loans, leases, and other assets. Most ABS are backed by auto loans and credit cards – these issues are very similar to mortgage-backed securities.

• At-the-money: The exercise price of a derivative that is closest to the market price of the underlying instrument.

• Basis Point: One hundredth of 1%. A measure normally used in the statement of interest rate e.g., a change from 5.75% to 5.81% is a change of 6 basis points.

• Bear Markets: Unfavorable markets associated with falling prices and investor pessimism.

• Bid-ask Spread: The difference between a dealer’s bid and ask price.

• Bid Price: The highest price offered by a dealer to purchase a given security.

• Blue Chips: Blue chips are unsurpassed in quality and have a long and stable record of earnings and dividends. They are issued by large and well-established firms that have impeccable financial credentials.

• Bond: Publicly traded long-term debt securities, issued by corporations and governments, whereby the issuer agrees to pay a fixed amount of interest over a specified period of time and to repay a fixed amount of principal at maturity.

• Book Value: The amount of stockholders’ equity in a firm equals the amount of the firm’s assets minus the firm’s liabilities and preferred stock

• Broker: Individuals licensed by stock exchanges to enable investors to buy and sell securities.

• Brokerage Fee: The commission charged by a broker.

• Bull Markets: Favorable markets associated with rising prices and investor optimism.

• Call Option: The right to buy the underlying securities at a specified exercise price on or before a specified expiration date.

• Callable Bonds: Bonds that give the issuer the right to redeem the bonds before their stated maturity.

• Capital Gain: The amount by which the proceeds from the sale of a capital asset exceed its original purchase price.

• Capital Markets: The market in which long-term securities such as stocks and bonds are bought and sold.

• Certificate of Deposits (CDs): Savings instrument in which funds must remain on deposit for a specified period, and premature withdrawals incur interest penalties.

• Closed-end (Mutual) Fund: A fund with a fixed number of shares issued, and all trading is done between investors in the open market. The share prices are determined by market prices instead of their net asset value.

• Collateral: A specific asset pledged against possible default on a bond. Mortgage bonds are backed by claims on property. Collateral trusts bonds are backed by claims on other securities. Equipment obligation bonds are backed by claims on equipment.

• Commercial Paper: Short-term and unsecured promissory notes issued by corporations with very high credit standings.

• Common Stock: Equity investment representing ownership in a corporation; each share represents a fractional ownership interest in the firm.

• Compound Interest: Interest paid not only on the initial deposit but also on any interest accumulated from one period to the next.

• Contract Note: A note which must accompany every security transaction which contains information such as the dealer’s name (whether he is acting as principal or agent) and the date of contract.

• Controlling Shareholder: Any person who is, or group of persons who together are, entitled to exercise or control the exercise of a certain amount of shares in a company at a level (which differs by jurisdiction) that triggers a mandatory general offer, or more of the voting power at general meetings of the issuer, or who is or are in a position to control the composition of a majority of the board of directors of the issuer.

• Convertible Bond: A bond with an option, allowing the bondholder to exchange the bond for a specified number of shares of common stock in the firm. A conversion price is the specified value of the shares for which the bond may be exchanged. The conversion premium is the excess of the bond’s value over the conversion price.

• Corporate Bond: Long-term debt issued by private corporations.

• Coupon: The feature on a bond that defines the amount of annual interest income.

• Coupon Frequency: The number of coupon payments per year.

• Coupon Rate: The annual rate of interest on the bond’s face value that a bond’s issuer promises to pay the bondholder. It is the bond’s interest payment per dollar of par value.

• Covered Warrants: Derivative call warrants on shares which have been separately deposited by the issuer so that they are available for delivery upon exercise.

• Credit Rating: An assessment of the likelihood of an individual or business being able to meet its financial obligations. Credit ratings are provided by credit agencies or rating agencies to verify the financial strength of the issuer for investors.

• Currency Board: A monetary system in which the monetary base is fully backed by foreign reserves. Any changes in the size of the monetary base has to be fully matched by corresponding changes in the foreign reserves.

• Current Yield: A return measure that indicates the amount of current income a bond provides relative to its market price. It is shown as: Coupon Rate divided by Price multiplied by 100%.

• Custody of Securities: Registration of securities in the name of the person to whom a bank is accountable, or in the name of the bank’s nominee; plus deposition of securities in a designated account with the bank’s bankers or with any other institution providing custodial services.

• Default Risk: The possibility that a bond issuer will default ie, fail to repay principal and interest in a timely manner.

• Derivative Call (Put) Warrants: Warrants issued by a third party which grant the holder the right to buy (sell) the shares of a listed company at a specified price.

• Derivative Instrument: The financial instrument whose value depends on the value of another asset.

• Discount Bond: A bond selling below par, as interest in-lieu to the bondholders.

• Diversification: The inclusion of a number of different investment vehicles in a portfolio in order to increase returns or be exposed to less risk.

• Duration: A measure of bond price volatility, it captures both price and reinvestment risks to indicate how a bond will react to different interest rate environments.

• Earnings: The total profits of a company after taxation and interest.

• Earnings per Share (EPS): The amount of annual earnings available to common stockholders as stated on a per-share basis.

• Earnings Yield: The ratio of earnings to price (E/P). The reciprocal is price earnings ratio (P/E).

• Equity: Ownership of the company in the form of shares of common stock.

• Equity Call Warrants: Warrants issued by a company which gives the holder the right to acquire new shares in that company at a specified price and for a specified period of time.

• Ex-dividend (XD): A security which no longer carries the right to the most recently declared dividend or the period of time between the announcement of the dividend and the payment (usually two days before the record date). For transactions during the ex-dividend period, the seller will receive the dividend, not the buyer. Ex-dividend status is usually indicated in newspapers with an (x) next to the stock’s or unit trust’s name.

• Face Value/ Nominal Value: The value of a financial instrument as stated on the instrument. Interest is calculated on face/nominal value.

• Fixed-income Securities: Investment vehicles that offer a fixed periodic return.

• Fixed Rate Bonds: Bonds bearing fixed interest payments until the maturity date.

• Floating Rate Bonds: Bonds bearing interest payments that are tied to current interest rates.

• Fundamental Analysis: Research to predict the stock value that focuses on such determinants as earnings and dividends prospects, expectations for future interest rates and risk evaluation of the firm.

• Future Value: The amount to which a current deposit will grow over a period of time when it is placed in an account paying compound interest.

• Future Value of an Annuity: The amount to which a stream of equal cash flows that occur in equal intervals will grow over a period of time when it is placed in an account paying compound interest.

• Futures Contract: A commitment to deliver a certain amount of some specified item at some specified date in the future.

• Hedge: A combination of two or more securities into a single investment position for the purpose of reducing or eliminating risk.

• Income: The amount of money an individual receives in a particular time period.

• Index Fund: A mutual fund that holds shares in proportion to their representation in a market index, such as the S&P 500.

• Initial Public Offering (IPO): An event where a company sells its shares to the public for the first time. The company can be referred to as an IPO for a period of time after the event.

• Inside Information: Non-public knowledge about a company possessed by its officers, major owners, or other individuals with privileged access to information.

• Insider Trading: The illegal use of non-public information about a company to make profitable securities transactions

• Intrinsic Value: The difference of the exercise price over the market price of the underlying asset.

• Investment: A vehicle for funds expected to increase its value and/or generate positive returns.

• Investment Adviser: A person who carries on a business which provides investment advice with respect to securities and is registered with the relevant regulator as an investment adviser.

• IPO price: The price of share set before being traded on the stock exchange. Once the company has gone Initial Public Offering, the stock price is determined by supply and demand.

• Junk Bond: High-risk securities that have received low ratings (i.e. Standard & Poor’s BBB rating or below; or Moody’s BBB rating or below) and as such, produce high yields, so long as they do not go into default.

• Leverage Ratio: Financial ratios that measure the amount of debt being used to support operations and the ability of the firm to service its debt.

• LIBOR: The London Interbank Offered Rate (or LIBOR) is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale money market (or interbank market). The LIBOR rate is published daily by the British Banker’s Association and will be slightly higher than the London Interbank Bid Rate (LIBID), the rate at which banks are prepared to accept deposit.

• Limit Order: An order to buy (sell) securities which specify the highest (lowest) price at which the order is to be transacted.

• Limited Company: The passive investors in a partnership, who supply most of the capital and have liability limited to the amount of their capital contributions.

• Liquidity: The ability to convert an investment into cash quickly and with little or no loss in value.

• Listing: Quotation of the Initial Public Offering company’s shares on the stock exchange for public trading.

• Listing Date: The date on which Initial Public Offering stocks are first traded on the stock exchange by the public

• Margin Call: A notice to a client that it must provide money to satisfy a minimum margin requirement set by an Exchange or by a bank / broking firm.

• Market Capitalization: The product of the number of the company’s outstanding ordinary shares and the market price of each share.

• Market Maker: A dealer who maintains an inventory in one or more stocks and undertakes to make continuous two-sided quotes.

• Market Order: An order to buy or an order to sell securities which is to be executed at the prevailing market price.

• Money Market: Market in which short-term securities are bought and sold.

• Mutual Fund: A company that invests in and professionally manages a diversified portfolio of securities and sells shares of the portfolio to investors.

• Net Asset Value: The underlying value of a share of stock in a particular mutual fund; also used with preferred stock.

• Offer for Sale: An offer to the public by, or on behalf of, the holders of securities already in issue.

• Offer for Subscription: The offer of new securities to the public by the issuer or by someone on behalf of the issuer.

• Open-end (Mutual) Fund: There is no limit to the number of shares the fund can issue. The fund issues new shares of stock and fills the purchase order with those new shares. Investors buy their shares from and sell them back to, the mutual fund itself. The share prices are determined by their net asset value.

• Open Offer: An offer to current holders of securities to subscribe for securities whether or not in proportion to their existing holdings.

• Option: A security that gives the holder the right to buy or sell a certain amount of an underlying financial asset at a specified price for a specified period of time.

• Oversubscribed: When an Initial Public Offering has more applications than actual shares available. Investors will often apply for more shares than required in anticipation of only receiving a fraction of the requested number. Investors and underwriters will often look to see if an IPO is oversubscribed as an indication of the public’s perception of the business potential of the IPO company.

• Par Bond: A bond selling at par (i.e. at its face value).

• Par Value: The face value of a security.

• Perpetual Bonds: Bonds which have no maturity date.

• Placing: Obtaining subscriptions for, or the sale of, primary market, where the new securities of issuing companies are initially sold.

• Portfolio: A collection of investment vehicles assembled to meet one or more investment goals.

• Preference Shares: A corporate security that pays a fixed dividend each period. It is senior to ordinary shares but junior to bonds in its claims on corporate income and assets in case of bankruptcy.

• Premium (Warrants): The difference in the market price of a warrant over its intrinsic value.

• Premium Bond: Bond selling above par.

• Present Value: The amount to which a future deposit will discount back to present when it is depreciated in an account paying compound interest.

• Present Value of an Annuity: The amount to which a stream of equal cash flows that occur in equal intervals will discount back to present when it is depreciated in an account paying compound interest.

• Price/Earnings Ratio (P/E): The measure to determine how the market is pricing the company’s common stock. The price/earnings (P/E) ratio relates the company’s earnings per share (EPS) to the market price of its stock.

• Privatization: The sale of government-owned equity in nationalized industry or other commercial enterprises to private investors.

• Prospectus: A detailed report published by the Initial Public Offering company, which includes all terms and conditions, application procedures, IPO prices etc, for the IPO

• Put Option: The right to sell the underlying securities at a specified exercise price on of before a specified expiration date.

• Rate of Return: A percentage showing the amount of investment gain or loss against the initial investment.

• Real Interest Rate: The net interest rate over the inflation rate. The growth rate of purchasing power derived from an investment.

• Redemption Value: The value of a bond when redeemed.

• Reinvestment Value: The rate at which an investor assumes interest payments made on a bond which can be reinvested over the life of that security.

• Relative Strength Index (RSI): A stock’s price that changes over a period of time relative to that of a market index such as the Standard & Poor’s 500, usually measured on a scale from 1 to 100, 1 being the worst and 100 being the best.

• Repurchase Agreement: An arrangement in which a security is sold and later bought back at an agreed price and time.

• Resistance Level: A price at which sellers consistently outnumber buyers, preventing further price rises.

• Return: Amount of investment gain or loss.

• Rights Issue: An offer by way of rights to current holders of securities that allow them to subscribe for securities in proportion to their existing holdings.

• Risk-Averse, Risk-Neutral, Risk-Taking:
  Risk-averse describes an investor who requires the greater return in exchange for greater risk.
  Risk-neutral describes an investor who does not require the greater return in exchange for greater risk.
  Risk-taking describes an investor who will accept a lower return in exchange for greater risk.

• Senior Bond: A bond that has priority over other bonds in claiming assets and dividends.

• Short Hedge: A transaction that protects the value of an asset held by taking a short position in a futures contract.

• Settlement: Conclusion of a securities transaction when a customer pays a broker/dealer for securities purchased or delivered, securities sold, and receives from the broker the proceeds of a sale.

• Short Position: Investors sell securities in the hope that they will decrease in value and can be bought at a later date for profit.

• Short Selling: The sale of borrowed securities, their eventual repurchase by the short seller at a lower price and their return to the lender.

• Speculation: The process of buying investment vehicles in which the future value and level of expected earnings are highly uncertain.

• Stock Splits: Wholesale changes in the number of shares. For example, a two for one split doubles the number of shares but does not change the share capital.

• Subordinated Bond: An issue that ranks after secured debt, debenture, and other bonds, and after some general creditors in its claim on assets and earnings. Owners of this kind of bond stand last in line among creditors, but before equity holders, when an issuer fails financially.

• Substantial Shareholder: A person acquires an interest in relevant share capital equal to, or exceeding, 10% of the share capital.

• Support Level: A price at which buyers consistently outnumber sellers, preventing further price falls.

• Technical Analysis: A method of evaluating securities by relying on the assumption that market data, such as charts of price, volume, and open interest, can help predict future (usually short-term) market trends. Contrasted with fundamental analysis which involves the study of financial accounts and other information about the company. (It is an attempt to predict movements in security prices from their trading volume history.)

• Time Horizon: The duration of time an investment is intended for.

• Trading Rules: Stipulation of parameters for opening and intra-day quotations, permissible spreads according to the prices of securities available for trading and board lot sizes for each security.

• Trust Deed: A formal document that creates a trust. It states the purpose and terms of the name of the trustees and beneficiaries.

• Underlying Security: The security subject to being purchased or sold upon exercise of the option contract.

• Valuation: Process by which an investor determines the worth of a security using risk and return concept.

• Warrant: An option for a longer period of time giving the buyer the right to buy a number of shares of common stock in the company at a specified price for a specified period of time.

• Window Dressing: Financial adjustments made solely for the purpose of accounting presentation, normally at the time of auditing of company accounts.

• Yield (Internal rate of Return): The compound annual rate of return earned by an investment

• Yield to Maturity: The rate of return yield by a bond held to maturity when both compound interest payments and the investor’s capital gain or loss on the security are taken into account.

• Zero Coupon Bond: A bond with no coupon that is sold at a deep discount from par value.

Also Read:

• Banks and their headquarters
• Important information on Nationalised Banks
• Chief Managing Directors (CMD) OF Banks