Which of the following statements are correct in respect to Balance of payment?
A. Exports of goods are entered on debit side.
B. Transfer payments are receipts without rendering any services in return.
C. Capital account includes external borrowings.
D. Net invisibles are the part of current account.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → B, C and D only
The balance of payments records a country’s dealings with the rest of the world in two accounts: the current account for trade in goods and services and transfer payments, and the capital account for transactions in assets such as investment and loans. Whatever brings foreign exchange into the country is a credit; whatever takes it out is a debit.
A. Exports of goods are entered on debit side. False. Every transaction that brings foreign exchange into the country is entered on the credit side, and every one that takes it out on the debit side. Exports are paid for by foreigners, so they bring foreign exchange in. Export of goods is a credit item, and import of goods is the debit item.
B. Transfer payments are receipts without rendering any services in return. True. Transfer payments are receipts that the residents of a country get for free, without providing any goods or services in return. They consist of gifts, remittances and grants.
C. Capital account includes external borrowings. True. The capital account records transactions in assets, and a loan is one such transaction. Its items are foreign direct investment, foreign institutional investment, and external borrowings and assistance.
D. Net invisibles are the part of current account. True. Invisibles are services, transfers and flows of income between countries. The balance on current account has two parts, the balance of trade in goods and the balance on invisibles.
NCERT (2025-26): “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. Transfer payments are the receipts which the residents of a country get for ‘free’, without having to provide any goods or services in return. They consist of gifts, remittances and grants. They could be given by the government or by private citizens living abroad.… …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. Export of goods is entered as a credit item in BOT, whereas import of goods is entered as a debit item in BOT.… …Net Invisibles is the difference between the value of exports and value of imports of invisibles of a country in a given period of time. Invisibles include services, transfers and flows of income that take place between different countries.… 6.1.2 Capital Account Capital Account records all international transactions of assets.… These items are Foreign Direct Investments (FDIs), Foreign Institutional Investments (FIIs), external borrowings and assistance.”
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