Read the following statements - Assertion (A) and Reason (R):
Assertion (A): When there is a deficit in current account but a surplus in capital account this may result in either a balanced or surplus Balance of Payments Account.
Reason (R): When there is a trade deficit, there will always be a BoP deficit.
From the given alternatives choose the correct one:
Answer & explanation
Correct answer: option 3
When there is a trade deficit, the current account may not necessarily be in deficit and even if current account is also in deficit, the capital account may be in surplus or deficit. So the BoP balance may either be surplus, deficit or balanced depending on balances of current and capital accounts.
Also, when there is a deficit in current account but a surplus in capital account this may result in either a balanced or surplus Balance of Payments Account.