Question

Q. Consider the following statements with reference to Balance of Payments:

Which of the above given statements is/are incorrect?

• A.
  1 only
• B.
  2 only
• C.
  Both 1 and 2
• D.
  Neither 1 nor 2

Answer 1

The correct option is C

Both 1 and 2
Explanation:

The BoP or balance of payments record the undertakings or transactions of commodities, assets and services between citizens of a nation with the rest of the world for a stated time frame frequently every year. Balance of Payments is also known as Balance of International Payments.

Statement 1 is incorrect: The nation could use its reserves of foreign exchange in order to balance any shortfall in its BoP. When the foreign exchange is sold by the Reserve bank of India (RBI) during times of Balance of Payments deficit, it is known as official reserve sale. Hence, it is not Conducted by the Ministry of Finance.

Statement 2 is Incorrect: The balance of (International) payment accounts are divided into 3 types:

• Current Account: This account scans all the incoming and outgoing of goods and services between countries. All the payment made for raw materials and constructed goods is covered under this account. Few other deliveries that include in this category are from tourism, engineering, stocks, business services, transportation, and royalties from license and copyrights, all these combined together make a BOP of a country.
• Capital Account: Capital transactions like purchase and sale of assets (non-financial) like land and properties are monitored under this account. This account also records the flow of taxes, acquisition and sale of fixed assets by immigrants moving into the different country. The shortage or excess in the current account is governed by the finance from the capital account and vice versa.
• Finance Account: The funds that flow to and from other countries through investments like real estate, foreign direct investments, business enterprises, etc is recorded in this account. The account calculates the foreign proprietor of domestic assets and domestic proprietor of foreign assets and analyses if it’s acquiring or selling more assets like stocks, gold, equity etc.