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FRM Part I · FRM Exam Part I · Foreign Exchange Markets

In a country's balance of payments accounts, which of the following transactions would be recorded in the current account?

Dividends received from foreign shares are recorded in the current account as primary income. The current account covers goods, services, primary income and transfers. The other transactions involve purchases of financial assets or reserve changes, which belong in the financial account.

  1. AA domestic firm purchases a controlling stake in a foreign manufacturing company
  2. BA domestic resident receives dividends from shares held in a foreign companyCorrect
  3. CThe central bank sells foreign currency reserves to buy its own currency
  4. DA foreign investor buys domestic government bonds

Explanation

The current account records trade in goods and services, primary income (such as dividends and interest) and secondary income (transfers). Dividends received from foreign shares are primary income. Acquiring a controlling stake and buying bonds are financial account items, and central bank intervention affects reserve assets in the financial account.

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