Group Members

Kiprono Felix Cheruiyot – 21/05557

Gechanga Stephanie Kemunto – 21/05396

Rotich Cheruiyot Godwin – 21/05660

Laudo Elvis Lusweti – 21/0710

Ong’udi Amos okoth – 21/07589

Ochieng Mijoge Daniel – 21/05564

Gakobo Michelle Waithera – 18/04089

With the aid of an illustration (s), clearly discuss in detail the concepts of Balance of Trade
and Balance of Payments

Balance of payment

Balance of Payments is the difference between the total flow of money coming into a country
and the total flow of money going out of a country during a period of time. It takes into
account the records of all economic transactions between people, businesses, governments,
and the rest of the world within a specific time period. Therefore, a country's balance of
payments comprises all of its external transactions, such as payments for its exports and
imports of products, services, investments, loans, and foreign aid, as well as payments for
financial capital and financial transfers.

Consider the following illustrations.

For instance, if a Kenyan company buys land or a factory in another country like Ethiopia,
that investment is included in the Kenyan balance of payments as an outflow. Likewise, if a
Kenyan company is sold to a foreign company, it’s included in the balance of payments.
Let’s assume Safaricom bought Uber’s subsidiary in Kenya in a deal valued at $35 billion.
This sale will create a cash inflow  to the United States, but over the long term, it will
decrease the revenue flowing in from Kenya through Uber.

Balance of Trade

The balance of trade is the difference between a country's imports and exports during a
specific time period. A country that imports more goods and services than it exports in terms
of value has a trade deficit while a country that exports more goods and services than it
imports has a trade surplus.
A positive trade balance alone cannot be used to determine the state of an economy. The
balance of trade should be taken into account in relation to other economic indicators,
business cycles, and other factors.

Illustration

Kenya's trade imbalance increased to a record Sh1.24 trillion in the 11 months that ended in
November 2021 due to an increase in the cost of importing petroleum and industrial goods.

Total imports increased by 29 percent or Sh430 billion to reach Sh1.91 trillion, according to
the Kenya National Bureau of Statistics, outpacing exports, which increased by a more
modest Sh89 billion or 15 percent to Sh672.6 billion.