With reference to Balance of Payments, which of the following constitutes/constitute the Current Account? 1. Balance of trade 2. Foreign assets 3. Balance of invisibles 4. Special Drawing Rights Select the correct answer using the code given below.
- (a) 1 only
- (b) 2 and 3
- (c) 1 and 3 ✓ UPSC's answer
- (d) 1, 2 and 4
Why the answer is (c)
• The current account of the Balance of Payments records trade in goods (balance of trade, 1) and invisibles (3) — services, income and transfers/remittances.
• Foreign assets (2) and SDR transactions (4) belong to the capital/financial account and reserves, not the current account.
• India runs a current account deficit when the trade deficit exceeds the invisibles surplus.
• Hence 1 and 3, option (c).
Why the other options are wrong
- (a) 1 only
- Balance of invisibles is also part of the current account.
- (b) 2 and 3
- Foreign assets are in the capital account.
- (d) 1, 2 and 4
- Foreign assets and SDRs are not current account items.
Asked in the GS Paper I of the UPSC Civil Services Preliminary Examination 2014, held on 24 August 2014. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.