CA Foundation · Business Economics · International Trade
In the balance of payments accounts of a country, which of the following transactions is recorded in the capital account (and not in the current account)?
Foreign direct investment received from a Japanese firm is recorded in the capital account, because it is a flow of capital. Software exports, remittances and interest payments are services, transfer and income items, which are all part of the current account of the balance of payments.
- AExport of software services to the USA
- BForeign direct investment received by an Indian company from a Japanese firmCorrect
- CRemittances sent home by Indians working in the Gulf
- DPayment of interest on external commercial borrowings
Explanation
The current account records trade in goods and services, income (such as interest) and transfers (such as remittances). Foreign direct investment is a capital flow, so it belongs to the capital and financial account. The other options are services exports, transfers and income payments, all current account items.
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