Question

Q. With reference to the Balance of Payments, which of the following fall under the Current account?

Select the correct answer using the code given below.

• A. 1 and 2 only
• B. 1 and 3 only
• C. 2 and 3 only
• D. 1, 2 and 3

Answer 1

The correct option is B 1 and 3 only

Explanation:

• The balance of payments (BOP), also known as the balance of international payments, summarizes all transactions that a country’s individuals, companies, and government bodies complete with individuals, companies, and government bodies outside the country.
• The current account represents a country's net income over a period of time, while the capital account records the net change of assets and liabilities during a particular year.
• In the Current account of the BoP, transactions are classified into merchandise (exports and imports) and Invisibles. Invisible transactions are further classified into three categories, namely (a) Services, (b) Income ( investment income & compensation of employees ); and (c) Current Transfers (grants, gifts, remittances, etc.) which do not have any quid pro quo. This account also includes the interest payments on loans.
• The major components of the capital account are Financial Investments which include FDI, External commercial borrowings, etc. It gives a summary of the net flow of both private and public investment into an economy.