Question

Gifts and remittances to abroad are recorded on the:

• A. Credit side of current account
• B. Debit side of capital account
• C. Debit side of current account
• D. Credit side of capital account

Hint:

In Balance of Payments, inflow of foreign exchange is recorded on the credit side, while outflow of foreign exchange is recorded on the debit side.

Answer 1

The Correct Option is C

Step 1: Understanding Balance of Payments.
The Balance of Payments (BOP) records all economic transactions between residents of a country and the rest of the world during a given period. It is divided into two major accounts: the current account and the capital account.
Step 2: Nature of remittances and gifts.
Gifts and remittances sent abroad are considered unilateral transfers. These are transactions where money is transferred without receiving any goods or services in return. Such transfers are recorded under the current account of the Balance of Payments.
Step 3: Debit or credit classification.
When money is sent abroad, it represents an outflow of foreign exchange from the country. Any outflow of foreign exchange is recorded on the debit side of the current account in the Balance of Payments.
Step 4: Conclusion.
Therefore, gifts and remittances sent abroad are recorded on the debit side of the current account.
Final Answer: Debit side of current account.