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IAI Actuarial Core Principles · Business Economics · Balance of payments and exchange rates

In a country's balance of payments, which of the following transactions is recorded as a credit item in the current account?

Fees earned by an Indian software firm from a US client are a credit in the current account, because they are receipts for exported services. Interest payments and import payments are debits, and buying foreign shares or reserves belongs to the financial account.

  1. AAn Indian software firm earns fees from a US client for services deliveredCorrect
  2. BAn Indian company pays interest on a loan taken from a foreign bank
  3. CAn Indian resident buys shares in a foreign company
  4. DAn Indian importer pays for crude oil purchased from abroad
  5. The Reserve Bank of India buys foreign currency reserves

Explanation

Credits in the current account record receipts from abroad for exports of goods and services. Software fees earned from a foreign client are an export of services. Interest paid and oil imports are debits, while share purchases and reserve purchases belong to the financial account or reserves.

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