Question

Which of the following pairs is correctly matched with regard to balance of payment accounts ?
1. Direct investment receipt – Credit in the capital account
2. Receipts of transfer payments – Debit in the current account
3. Portfolio investment payments- credit in the current account
4. Export of services – Debit in the current account.
5.

Answer 1

Correct Answer - Option 1 : Direct investment receipt – Credit in the capital account

The correct answer is Direct investment receipt – Credit in the capital account.

• The balance of payments (BOP) is the record of any payment or receipt between one nation and its nationals with any other country.
• The current account, the capital account, and the financial account make up a country's BOP.
• Together, these three accounts tell a story about the state of an economy, its economic outlook, and its strategies for achieving its desired goals.
• A current account records the flow of goods and services in and out of a country, including tangible goods, service fees, tourism receipts, and money sent directly to other countries either as aid or sent to families.
• A financial account measures the increase or decrease in international ownership assets that a country is associated with, while a capital account measures the capital expenditures and overall income of a country.
• A country's capital account refers to any and all international capital transfers.
  • The overall expenditures and income are measured by the inflow and outflow of funds in the form of investments and loans flowing in and out of the economy. Hence, the Direct investment receipt is credited into the capital account.