Question 30
1. Balance of trade
2. Foreign assets
3. Balance of invisibles
4. Special Drawing Rights
Select the correct answer using the code given below.
AOptions
BSolution
The Balance of Payments (BoP) is a statement of all transactions made between entities in one country and the rest of the world over a specified period, typically a year. It is divided into two main accounts: the Current Account and the Capital Account.
The Current Account records the flow of goods, services, income, and unilateral transfers. Specifically, it includes:
- Balance of Trade (Visible Trade): This refers to the value of exports and imports of goods (physical commodities).
- Balance of Invisibles: This encompasses the value of exports and imports of services (e.g., software, tourism, shipping, banking), income (e.g., remittances, interest, dividends on investments), and current transfers (e.g., grants, gifts, workers' remittances).
Foreign assets and Special Drawing Rights (SDRs) are components typically found in the Capital Account or are part of a country's official reserve assets, not the Current Account. Foreign assets relate to financial claims, while SDRs are international reserve assets created by the International Monetary Fund (IMF).
CStrategy
To answer questions on the Balance of Payments, a clear understanding of its two main components (Current Account and Capital Account) and the specific types of transactions included in each is essential. Memorizing the major categories (goods, services, income, transfers for Current Account; investments, loans for Capital Account) is key.
DSyllabus Analysis
This question is from Indian Economy, specifically International Economics and Balance of Payments.
EQuestion Analysis
Medium. Requires a precise understanding of the components that constitute the Current Account of the Balance of Payments.