Which of the following statements are correct?
(A) Errors and omissions are a third element of the BoP, apart from the current and capital accounts.
(B) Errors and omissions arise because it is difficult to record all international transactions accurately.
(C) A current account deficit must be financed by a capital account deficit.
(D) A country can have a trade deficit and a current account deficit and still have its BoP in balance.
(E) Official reserve transactions are treated as autonomous items in the BoP.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (A), (B) and (D) only
Errors and omissions cover what cannot be recorded accurately. A current account deficit is met by a capital account surplus.
(A) Errors and omissions are a third element of the BoP, apart from the current and capital accounts. — Correct. Besides the current and capital accounts, the BoP has this third element.
(B) Errors and omissions arise because it is difficult to record all international transactions accurately. — Correct. That recording difficulty is why the item exists.
(C) A current account deficit must be financed by a capital account deficit. — Incorrect. It is financed by a capital account surplus, a net capital inflow.
(D) A country can have a trade deficit and a current account deficit and still have its BoP in balance. — Correct. A capital account surplus can cover both deficits, so the BoP is in balance.
(E) Official reserve transactions are treated as autonomous items in the BoP. — Incorrect. They bridge the BoP gap, so they are the accommodating item.
NCERT (2026-27): “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. Table 6.1 provides a sample of Balance of Payments for India. Note in this table, there is a trade deficit and current account deficit but a capital account surplus. As a result, BOP is in balance.” “6.1.3 Balance of Payments Surplus and Deficit … Thus, any current account deficit must be financed by a capital account surplus, that is, a net capital inflow.” “Autonomous and Accommodating Transactions … Since the official reserve transactions are made to bridge the gap in the BoP, they are seen as the accommodating item in the BoP (all others being autonomous).” |