In the current account of the balance of payments, net factor income is made up of net income from compensation of employees and:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → net investment income
Trade in services has two parts: net factor income and net non-factor income. Net factor income is made up of net income from compensation of employees and net investment income.
Shipping, banking and tourism belong to non-factor income. External commercial borrowings are a capital account item, and transfers are a separate part of the current account.
NCERT (2026-27): “6.1.1 Current Account Current Account is the record of trade in goods and services and transfer payments. Figure 6.1 illustrates the components of Current Account. Trade in goods includes exports and imports of goods. Trade in services includes factor income and non-factor income transactions. …”
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