The correct option is 1 and 3 only.
Explanation
The Balance of Trade (BOT), often referred to as the Trade Balance, is a specific sub-component of the Current Account within a nation's Balance of Payments (BoP). It measures the economic difference between the monetary value of exports and imports of physical merchandise over a defined period.
Statement-wise Analysis:
- Statement 1 is Correct: The Balance of Trade accounts strictly for the difference between the value of exports and imports of goods only (often termed "visible trade"). It excludes trade in services (invisibles), income, and unilateral transfers, which are recorded separately under the Current Account.
- Statement 2 is Incorrect: In BoP accounting, transactions resulting in an inflow of foreign exchange are recorded as credit items, while those causing an outflow are recorded as debit items. The export of goods brings foreign currency into the country; therefore, it is entered as a credit item (positive side). Imports are entered as debit items.
- Statement 3 is Correct: A Trade Deficit occurs when the value of a country's imports of goods exceeds the value of its exports. This indicates a net outflow of currency regarding the trade in goods. Conversely, if exports exceed imports, it is termed a Trade Surplus.
Key Takeaway:
The Balance of Trade (BOT) deals exclusively with visible items (merchandise). It must be distinguished from the Balance of Invisibles (services, income, transfers) and the broader Current Account Balance.