ECONOMICS (CBSE/UGC NET)

ECONOMICS

BALANCE OF PAYMENTS

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
A St. Lucian receive dividends from his Microsoft shares purchased in the USA. This relates to which account?
A
Current Account
B
Capital Account
C
Errors and Omission Section
D
Official Reserve Account
Explanation: 

Detailed explanation-1: -Currently, official reserve assets comprise: (I) gold, (ii) foreign exchanges, (iii) special drawing rights (SDRs), and (iv) reserve positions with the IMF. Foreign exchanges are by far the most important official reserves.

Detailed explanation-2: -There are three components to the current account – the ‘trade balance’, ‘primary income balance’ and ‘secondary income balance’. In economic analysis or commentary, most attention is usually given to the trade balance, which records the difference between the value of our exports and imports of goods and services.

Detailed explanation-3: -The BoP statement of a country indicates whether it has a deficit or surplus of funds. For instance, if a country’s export is higher than its import, then there is a surplus in the balance of payments. However, a BoP deficit can arise if a country’s imports amount to more than its total exports.

Detailed explanation-4: -Importance of Balance of Payment It examines the transaction of all the exports and imports of goods and services for a given period. It helps the government to analyse the potential of a particular industry export growth and formulate policy to support that growth.

There is 1 question to complete.