It calculates the ratio of the imports and exports for an economy of the given country. If the exports are more than the imports, the balance of trade is regarded positive. On the other hand, if the imports are more than the exports, the balance of trade is regarded as negative.
Significance: Realizing the rate of exchange is certainly critical for the overseas exchange trader, but the information on the total exports in a nation can assist in predicting the upcoming trends in the inflation and the overseas investment and therefore can offer clues to future behavior of an offered financial market. Trade balance is primarily derived from three different factors which are the cost of goods in the country, tariff and tax depends on the exported and imported products and on the rate of exchange between two different currencies.
Among the three factors, the last one is regarded as fundamental to the overseas exchange trading. As the balance of trade depends on the existing state of rate of exchange between two different countries, the balance of trade is regarded as an important indicator for state of the overseas exchange market.
There are several measures for measuring balance of trade, but the chief one is the information offered on the condition of the trade in US in the report of International trade that the Census Bureau releases every month. The report is released each month during the third weekand consists of the details regarding the performance of the various exported products and services in different economic sectors.