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Question : 8
Total: 19
Name the broad categories of transactions recorded in the 'current account' of the Balance of Payments Accounts.
Solution:
The following are the broad categories of transactions recorded under current account of BOP.
(i) Export and import of goods: The transactions of a country in the form of export and import of goods is recorded in the current account of the BOP. This record of export and import of goods is also called the 'Balance of Visible Trade'. The export of goods is recorded as a positive item in the Current Account of BOP. This is because exports result in the inflow of foreign exchange into the country. On the other hand, imports of goods are recorded as negative items in the Current Account of BOP, as they result in an outflow of the foreign exchange from the country.
(ii) Export and import of services : Another component of the Current Account is the export and import of services. The record of export and import of services is also called the 'Balance of invisible trade'. Similar to the export of goods, export of services is also recorded as positive items in the Current Account of BOP. As against this, the import of services is recorded as negative items in the Current Account of BOP. The following are some of the major services that are included in the Current Account of BOP.
(a) Shipping services, insurance and banking services, etc.
(b) Income from investment (i.e. income from profits and dividends)
(c) Foreign travel
(d) Miscellaneous transactions such as royalties, consultancy services, telephone services, etc.
(iii) Unilateral Transfers : Unilateral transfers refer to the one-sided transfers such as gifts, donations, grants from foreign governments, etc. A country makes such transfers to the rest of the world as well as receives transfers from the rest of the world. Receipts of unilateral transfers are recorded as positive items in the Current Account of BOP, while payments of unilateral transfers are recorded as negative items in the Current Account of BOP.
(i) Export and import of goods: The transactions of a country in the form of export and import of goods is recorded in the current account of the BOP. This record of export and import of goods is also called the 'Balance of Visible Trade'. The export of goods is recorded as a positive item in the Current Account of BOP. This is because exports result in the inflow of foreign exchange into the country. On the other hand, imports of goods are recorded as negative items in the Current Account of BOP, as they result in an outflow of the foreign exchange from the country.
(ii) Export and import of services : Another component of the Current Account is the export and import of services. The record of export and import of services is also called the 'Balance of invisible trade'. Similar to the export of goods, export of services is also recorded as positive items in the Current Account of BOP. As against this, the import of services is recorded as negative items in the Current Account of BOP. The following are some of the major services that are included in the Current Account of BOP.
(a) Shipping services, insurance and banking services, etc.
(b) Income from investment (i.e. income from profits and dividends)
(c) Foreign travel
(d) Miscellaneous transactions such as royalties, consultancy services, telephone services, etc.
(iii) Unilateral Transfers : Unilateral transfers refer to the one-sided transfers such as gifts, donations, grants from foreign governments, etc. A country makes such transfers to the rest of the world as well as receives transfers from the rest of the world. Receipts of unilateral transfers are recorded as positive items in the Current Account of BOP, while payments of unilateral transfers are recorded as negative items in the Current Account of BOP.
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