UPSC Prelims 2014 · Question 10 of 100
UPSC Prelims 2014 question on Current Account Components
- ExamUPSC CSE
- Year2014
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicExternal Sector of India
- DifficultyMedium
- TypeStatement
With reference to Balance of Payments, which of the following constitutes 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.
Show answer
Answer: C. 1 and 3
Verdict
The answer is 1 and 3, balance of trade and balance of invisibles. Those two together constitute the current account of the balance of payments.
Analysis
Statement 1 is CORRECT. Balance of trade, the difference between merchandise exports and imports, is the visible half of the current account. Statement 3 is CORRECT. Balance of invisibles covers services, income and current transfers such as remittances, and is the other half. Statement 2 is INCORRECT. Foreign assets are stocks held abroad and belong to the capital and financial account, not to a flow account of current transactions. Statement 4 is INCORRECT. Special Drawing Rights are a reserve asset allocated by the IMF and are counted with reserve assets, not current transactions.
Source
NCERT Economics and Uma Kapila.
How to crack it
The whole balance of payments splits along one line: current account records flows of goods, services and transfers in the present period, while capital and financial account records changes in ownership of assets and liabilities. Ask of each item, is this a transaction or a holding. Anything that sounds like a stock, an asset, a reserve or a claim goes below the line. That single test resolves most balance of payments questions without any memorised list.