Identify the correct statements with respect to current account:
A. Balance of trade is the difference between export and import of goods in given period of time.
B. Current account records all international transactions of assets.
C. Trade in services includes factor income and non-factor income transactions.
D. Current account is in balance when capital inflows are equal to capital outflows.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → A and C only
A country’s dealings with the world are of two sorts. Trade in goods and services and transfer payments are recorded in the current account; dealings in assets, such as shares, bonds and loans, go to the capital account. Statements A and C describe the current account correctly; B and D describe the capital account.
A. Balance of trade is the difference between export and import of goods in given period of time. True. The balance of trade is the value of exports of goods minus the value of imports of goods in a given period. It is one of the two parts of the balance on current account, the other being the balance on invisibles.
B. Current account records all international transactions of assets. False. The current account records flows of goods, services, income and transfers, which are never repaid. Transactions in assets, such as money, shares, bonds and loans, are recorded in the capital account, because they change what residents own abroad or owe to foreigners.
C. Trade in services includes factor income and non-factor income transactions. True. Factor income is the net earnings from labour, land and capital across borders; non-factor income is the net sale of services such as shipping, banking, tourism and software services. Both are part of trade in services in the current account.
D. Current account is in balance when capital inflows are equal to capital outflows. False. Equality of capital inflows and outflows is the balance on the capital account. The current account is in balance when receipts on current account equal payments on current account.
NCERT (2025-26): “6.1.1 Current Account … Trade in goods includes exports and imports of goods. Trade in services includes factor income and non-factor income transactions.… …Balance of Trade (BOT) is the difference between the value of exports and value of imports of goods of a country in a given period of time.… …Capital Account records all international transactions of assets. An asset is any one of the forms in which wealth can be held, for example: money, stocks, bonds, Government debt, etc.… …Capital account is in balance when capital inflows (like receipt of loans from abroad, sale of assets or shares in foreign companies) are equal to capital outflows (like repayment of loans, purchase of assets or shares in foreign countries).…” |