Question : Which account in the Balance of Payments records the flow of goods, services, and income between residents and non-residents?
Option 1: Current Account
Option 2: Capital Account
Option 3: Financial Account
Option 4: Reserve Account
Correct Answer: Current Account
Solution : The correct answer is (a) Current Account.
The Current Account of the Balance of Payments records the flow of goods, services, and income between residents and non-residents over a specific period. It includes various components such as:
1. Trade in Goods: The value of exports and imports of physical goods.
2. Trade in Services: The value of exports and imports of intangible services, such as tourism, transportation, and financial services.
3. Income Flows: This includes income earned by residents from their investments abroad (such as dividends, interest, and profits) and income earned by non-residents from their investments in the country.
4. Current Transfers: Unilateral transfers between residents and non-residents, such as foreign aid, remittances, and grants.
The Current Account represents the overall balance of these components, reflecting the net result of a country's transactions in goods, services, income, and current transfers with the rest of the world.
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