I. Foreign loans
II. Foreign Direct Investment
III. Private Remittances
Choose the correct answer from the codes below :
Codes :
Capital Account Components in Balance of Payments
The Balance of Payments (BoP) tracks a country's financial transactions with the rest of the world. It is broadly divided into two main accounts: the Current Account and the Capital Account.
The Capital Account specifically records international financial flows related to changes in asset ownership and liabilities. It includes:
- Portfolio Investments (e.g., stocks and bonds)
- Direct Investments (like FDI)
- Loans and Credits
- Banking Capital
- Monetary Gold Movement
Let's analyze the given items:
- I. Foreign loans: These represent borrowing from or lending to foreign entities. Inflows increase liabilities, and outflows decrease them. These financial flows are recorded under the Capital Account.
- II. Foreign Direct Investment (FDI): FDI involves acquiring a lasting interest and control in an enterprise operating in another economy. It leads to changes in assets and liabilities and is a crucial part of the Capital Account.
- III. Private Remittances: These are typically unilateral transfers, such as money sent by individuals working abroad to their families. Such transfers, along with trade in goods and services and income receipts/payments, are classified under the Current Account of the BoP.
Therefore, both Foreign loans (I) and Foreign Direct Investment (II) are included in the Capital Account.
The correct option includes items I and II.
Important Questions from Balance of payments (BOP)
- If there is a balance of payments deficit then in a floating exchange rate system :
- Devaluation, will improve the balance of payment deficit, if sum of elasticity of exports and imports of the devaluing country is :
Match the following :
List – I List – II a. Sum of price elasticity of demand for exports and imports greater than unity. 1. J-curve effect b. Balance of Payments is the difference between National Income and expenditure 2. Import quota systems c. Empirical evidence showing lower short run price elasticities of exports and imports. 3. Marshall-Lerner condition d. Method to cut down imports 4. Absorption approach
Select correct code :
Codes :
- A deficit or surplus in the India’s balance of payments is measured by the net balance of
Match the items of List I with the items of List II and choose the correct answer from the code given below.
List I
List II
(a)
Balance of trade
(i)
Imports and exports of goods and services
and unilateral transfer of goods and services(b)
Current account
(ii)
Transactions leading to changes in the
financial assets and liabilities of a country(c)
Balance of payments
(iii)
All economic transactions between a country's
residents and residents of other countries(d)
Capital account
(iv)
Value of exports and imports of country
