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CA Foundation · Business Economics · International Trade

In the balance of payments of a country, which of the following transactions is recorded in the capital account (financial account) rather than the current account?

An Indian company buying shares of a foreign company is a capital account (financial account) item because it creates a foreign financial asset. Software exports, remittances and interest payments are service, transfer and income flows, so they are recorded in the current account.

  1. AExport of software services by an Indian firm to the USA
  2. BRemittances sent by Indians working in the Gulf to their families in India
  3. CAn Indian company purchasing shares of a foreign companyCorrect
  4. DInterest paid by India on a loan taken from a foreign bank

Explanation

The current account records trade in goods and services, income and transfers. Software exports are services, remittances are transfers, and interest paid is investment income, so all three belong to the current account. Purchase of foreign shares is an acquisition of a foreign financial asset and is recorded in the capital/financial account.

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