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Question : 14
Total: 18
Distinguish (a) between current account and capital account, and (b) between autonomous transactions and accommodating transactions of balance of payments account.
Solution:
(a)
(b)
| Current Account BOP | Capital Account BOP |
|---|---|
| (i) It records exports and imports of goods and services and current transfers. | It records all such transactions between residents of country and rest of the world which causes a change in the ownership of the assets. |
| (ii) Transactions of current account does not affect asset liability status of the country in relation to the rest of the world. | Transaction of capital account affect the asset liability status of the country in relation to the rest of the world. |
| (iii) Current account transactions impact capital account transactions, Example: Deficit on current account often leads to borrow ing. | Capital account transactions impact current account transactions. Example : FDI leads to factor income to the rest of the world. |
| (iv) Principal components of current account BOP are: | Principal components of capital account BOP are: |
| (1) export and import of goods | (1) borrowing, and |
| (2) export and import of services, and | (2) foreign investment |
| (3) current transfers |
(b)
| Autonomous transactions (BOP) | Accommodating transactions (BOP) |
|---|---|
| (i) Autonomous transactions refer to such BOP transactions which are under-taken for consideration of profit. | Accommodating transactions are free from the considera. tions of profit. |
| (ii) Autonomous items are the cause of BOP imbalance (BOP surplus or BOP deficit) | Accomodating items are meant to restore BOP balance. |
| (iii) Autonomous items may involve the movement of goods across the borders (like export and import of consumer goods or capital goods). | Accommodating items do not in. volve the movement of goods across the borders. These items only involve the movement of official reserves with the RBI. |
| (iv) Autonomous items are classified as 'above the line' items of BOP. | Accomodating items are classified as 'below the line' items of BOP. |
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