The invisible balance or balance of trade on services is that part of the balanc

e of trade that refers to services and other products that do not result in the
transfer of physical objects. Examples include consulting services, shipping ser
vices, tourism, and patent license revenues. This figure is usually generated by
tertiary industry. The term 'invisible balance' is especially common in the Uni
ted Kingdom.
For countries that rely on service exports or on tourism, the invisible balance
is particularly important. For instance the United Kingdom and Saudi Arabia rece
ive significant international income from financial services, while Japan and Ge
rmany rely more on exports of manufactured goods.
Types of invisibles[edit]
Invisibles are both international payments for services (as opposed to goods), a
s well as movements of money without exchange for goods or services. These invis
ibles are called 'transfer payments' or 'remittances' and may include money sent
from one country to another by an individual, business, government or non-gover
nmental organisations (NGO)
often charities.
An individual remittance may include money sent to a relative overseas. Business
transfers may include profits sent by a foreign subsidiary to a parent company
or money invested by a business in a foreign country. Bank loans to foreign coun
tries are also included in this category, as are license fees paid for the use o
f patents and trademarks. Government transfers may involve loans made or officia
l aid given to foreign countries, while transfers made by NGO's include money de
signated for charitable work within foreign countries, respectively.
Balance of payments and invisibles[edit]
In many countries a useful distinction is drawn between the balance of trade and
the balance of payments. 'Balance of trade' refers to the trade of both tangibl
e (physical) objects as well as the trade in services
collectively known as expo
rts and imports (in other words, 'visibles plus services') while the 'balance of
payments' also includes transfers of Capital in the form of loans, investments
in shares or direct investment in projects.
A nation may have a visibles balance surplus but this can be offset by a larger
deficit in the invisibles balance (creating a Balance of Trade deficit overall)
if, for example, there are large payments made to foreign businesses for invisib
les such as shipping or tourism. On the other hand, a Visibles Balance deficit c
an be offset by a strong surplus on the invisibles balance if, for example, fore
ign aid is being provided.
In a similar way, a nation may also have a surplus 'balance of trade' because it
exports more than it imports but a negative (or deficit) 'balance of payments'
because, it has a much greater shortfall in transfers of capital. And, just as e
asily, a deficit in the 'balance of trade' may be offset by a larger surplus in
capital transfers from overseas to produce a balance of payments surplus overall
.
Balance of payments problems and the invisible balance[edit]
Problems with a country's balance of trade (or balance of payments) are often as
sociated with an inappropriate valuation of its currency, its country's foreign
exchange rate.
If a country's exchange rate is too high, its exports will become uncompetitive
as buyers in foreign countries require more of their own currency to pay for the
m. In the meantime, it also becomes cheaper for the citizens of the country to b
uy goods from overseas,as opposed to buying locally produced goods), because an
overvalued currency makes foreign products less expensive.

The simultaneous decline in currency inflows from decreased exports and the rise
in outflows, due to increased imports, sends the balance of trade into deficit,
which then needs to be paid for by a transfer of funds in some form, either inv
isible transfers (aid, etc.) or capital flows (loans, etc.). However, relying on
funds like that to support a trade deficit, is unsustainable, and the country m
ay eventually require its currency to be devalued.
If, on the other hand, a currency is undervalued, its exports will become cheape
r and therefore more competitive internationally. At the same time, imports will
also become more costly, stimulating the production of domestic substitutes to
replace them. That will result in a growth of currency flowing into the country
and a decline in currency flowing out of it, resulting in an improvement in the
country's balance of trade.
Because a nation's exchange rate has a big impact on its 'balance of trade' and
its 'balance of payments', many economists favour freely floating exchange rates
over the older, fixed (or pegged) rates of foreign currency exchange. Floating
exchange rates allow more regular adjustments in exchange rates to occur, allowi
ng the greater opportunity for international payments to maintain equilibrium.