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.

[UPSC Civil Services Exam – 2014 Prelims]

(a) 1 only

(b) 2 and 3

(c) 1 and 3

(d) 1, 2 and 4

Answer: (c)        

Explanation:

• The balance of payments is a comprehensive record of all monetary transactions between a country’s residents and the rest of the world. It encompasses both inflows and outflows of funds.
• A balance of payments deficit occurs when a nation’s imports exceed its exports, indicating a negative trade balance.
• The balance of payments consists of two main components: the current account and the capital account.
• The current account covers various transactions such as trade in goods and services (including invisible items), as well as transfer payments.
• The capital account encompasses activities like Foreign Direct Investment, Foreign Portfolio Investment, External Commercial Borrowings, and Special Drawing Rights (SDR). It records international transactions involving assets like money, stocks, bonds, and other financial instruments.