“When it is difficult to record all international transactions accurately, then a third element of BOP (apart from the current and capital accounts) is used.” Identify the third reflector of Balance of Payments (BOP).
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Errors and omissions
The balance of payments records a country’s transactions in goods, services and assets with the rest of the world in two main accounts, the current account and the capital account. In principle the two should balance, but in practice it is difficult to record every international transaction accurately. The gap that remains is shown by a third element, errors and omissions.
Why the other options are incorrect
Option (2) Foreign capital account — Incorrect. Foreign investment and borrowing are recorded in the capital account itself, one of the two main accounts, not in a separate third element.
Option (3) Private capital account — Incorrect. Private capital flows are also part of the capital account; they are not the item that absorbs recording errors.
Option (4) Government revenue account — Incorrect. Government revenue belongs to the government budget, not to the balance of payments.
Note: A same/similar question was asked in CUET (UG) in the papers below.
| 2026 | 2025 | 2024 | 2023 | 2022 |
| 21-05 S1 | 28-05 S1* | – | – | – |
* A similar question.
NCERT (2025-26): “6.1 The Balance of Payments … The balance of payments (BoP) record the transactions in goods, services and assets between residents of a country with the rest of the world for a specified time period typically a year. There are two main accounts in the BoP — the current account and the capital account… Errors and Omissions It is difficult to record all international transactions accurately. Thus, we have a third element of BoP (apart from the current and capital accounts) called errors and omissions which reflects this.…” |