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Q30 (IAS/2014) Economy › External Sector & Trade › Balance of payments Official Key

With reference to Balance of Payments, which of the following constitutes/constitute 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.

Result
Your answer: —  ·  Correct: C
Explanation

Balance on Current Account has two components: Balance of Trade or Trade Balance and Balance on Invisibles[1]. Current Account is the record of trade in goods and services and transfer payments[2], which means it includes both visible trade (goods) and invisible trade (services and transfers).

Balance of Trade (BOT) is the difference between the value of exports and value of imports of goods of a country in a given period of time[1]. Invisibles include services, transfers and flows of income that take place between different countries, and services trade includes both factor and non-factor income[3].

Foreign assets, on the other hand, are part of the Capital Account, not the Current Account. Capital Account is a record of the inflows and outflows of capital that directly affect a country's foreign assets and liabilities, and capital account transactions are those which alter residents' assets or liabilities outside the country[4].

Special Drawing Rights (SDRs) are reserve assets and form part of a country's international reserves, not the Current Account. Therefore, only statements 1 (Balance of trade) and 3 (Balance of invisibles) constitute the Current Account, making option C correct.

Sources
  1. [1] Macroeconomics (NCERT class XII 2025 ed.) > Chapter 6: Open Economy Macroeconomics > Balance on Current Account > p. 87
  2. [2] Macroeconomics (NCERT class XII 2025 ed.) > Chapter 6: Open Economy Macroeconomics > 6.1.1 Current Account > p. 86
  3. [3] Macroeconomics (NCERT class XII 2025 ed.) > Chapter 6: Open Economy Macroeconomics > Balance on Current Account > p. 88
  4. [4] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.27 Balance of Payment (BoP) > p. 107
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Q. With reference to Balance of Payments, which of the following constitutes/constitute the Current Account? 1. Balance of trade 2. Foreign …
At a glance
Origin: Books + Current Affairs Fairness: Moderate fairness Books / CA: 5/10 · 5/10
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This is a foundational 'Sitter' question testing the core definition of Balance of Payments. It relies entirely on the static distinction between 'Flows' (Current Account) and 'Asset/Liability Changes' (Capital Account). If you understand the 'Asset Test', this question requires zero rote memorization.

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
Is the balance of trade (exports minus imports of goods) included in the Current Account of the Balance of Payments?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Macroeconomics (NCERT class XII 2025 ed.) > Chapter 6: Open Economy Macroeconomics > Balance on Current Account > p. 87
Presence: 5/5
“Current Account is in balance when receipts on current account are equal to the payments on the current account. A surplus current account means that the nation is a lender to other countries and a deficit current account means that the nation is a borrower from other countries. • Current Account: Surplus; Balanced Current: Account; Current Account: Deficit • Current Account: Receipts > Payments; Balanced Current: Receipts = Payments; Current Account: Receipts < Payments Balance on Current Account has two components: • ·Balance of Trade or Trade Balance• ·Balance on Invisibles Balance of Trade (BOT) is the difference between the value of exports and value of imports of goods of a country in a given period of time.”
Why this source?
  • Explicitly states Balance on Current Account has two components: Balance of Trade and Balance on Invisibles.
  • Defines Balance of Trade as the difference between value of exports and imports of goods — directly linking BOT to the Current Account.
Macroeconomics (NCERT class XII 2025 ed.) > Chapter 6: Open Economy Macroeconomics > 6.1.1 Current Account > p. 86
Presence: 5/5
“Current Account is the record of trade in goods and services and transfer payments. Figure 6.1 illustrates the components of Current Account. Trade in goods includes exports and imports of goods. Trade in services includes factor income and non-factor income transactions. Transfer payments are the receipts which the residents of a country get for 'free', without having to provide any goods or services in return. They consist of gifts, remittances and grants. They could be given by the government or by private citizens living abroad.”
Why this source?
  • Defines the Current Account as the record of trade in goods and services and transfer payments.
  • Specifies trade in goods includes exports and imports of goods, which are the elements of BOT.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.27 Balance of Payment (BoP) > p. 107
Presence: 5/5
“Current Account: Current account deals in those transactions which do not alter Indian residents' assets or liabilities, including contingent liabilities, outside India and foreign resident's assets or liabilities inside India. Current account comprises of visible trade (export and import of goods), invisible trade (export and import of services), unilateral transfers and investment income (income earned from factors of production such as land, foreign shares, loans etc.). Capital Account: This account is a record of the inflows and outflows of capital that directly affect a country's foreign assets and liabilities. Capital account transactions are those transactions which alter Indian residents' assets or liabilities, including contingent liabilities, outside India and foreign resident's assets or liabilities inside India.”
Why this source?
  • States Current Account comprises visible trade (export and import of goods), invisible trade, transfers and investment income.
  • Identifies visible trade (exports−imports of goods) as an explicit component of the Current Account.
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Statement analysis

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Statement analysis

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