UPSC Prelims 2014 GS Paper I · Q30 of 100 Economy easy

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.

  1. (a) 1 only
  2. (b) 2 and 3
  3. (c) 1 and 3 ✓ UPSC's answer
  4. (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.

Reading the answer is not the same as getting it right under a clock. Practise this question with UPSC's negative marking, and anything you miss goes into an error notebook until you get it right twice.

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