In the context of Balance of Payment, current account does record which of the following?
Show answer & explanation
Correct answer: D
Explanation
Correct Answer: Option 4 (Grants)
Explanation:
In the context of the Balance of Payments (BoP), the Current Account records trade in goods and services, income, and grants/transfers. Grants are considered unilateral transfers, which do not require the provision of any goods or services.
Additional Facts
Current Account vs. Capital Account: Foreign institutional investment (FII), foreign direct investment (FDI), and external debt are part of the Capital Account, not the Current Account.
Visible and Invisible Items: The Current Account accounts for visible items (such as crude oil, gold) and invisible items (such as tourism, banking services, grants).
Deficit: If a country's imports exceed its exports and grants received, it is called a Current Account Deficit (CAD).
Possible questions for upcoming exams
Foreign direct investment (FDI) falls under which account of the balance of payments?
(Answer: Capital account)
What is the difference between exports and imports of 'visible items' called?
(Answer: Balance of Trade)
What is it called when exports exceed imports?
(Answer: Trade surplus)