Question

Identify the transactions that will be recorded in India’s capital account of the Balance of Payments (BoP) :

(Choose the correct option)

(i) Indian residents purchasing properties in Dubai

(ii) Indian firms borrowing from international banks

(iii) Remittances by Indians working abroad

(iv) Repayment of outstanding loans by the Indian Government to the IMF

• A. (i) and (iii)
• B. Only (iii)
• C. (ii) and (iii)
• D. (i), (ii) and (iv)

Hint:

Capital account records changes in assets and liabilities (property abroad, borrowing, loan repayment). Remittances are transfers and go to the current account.

Answer 1

The Correct Option is D

Step 1: Understand what the capital account records:
The Balance of Payments (BoP) has two main parts. The current account records trade in goods and services, income and transfers. The capital account records transactions in assets and liabilities between residents and the rest of the world.
Examples are foreign investment, loans taken or given, and the purchase or sale of assets abroad.

Step 2: Classify each transaction:
(i) Indian residents buying property in Dubai means India buys a foreign asset. This is a capital outflow, so it goes on the debit side of the capital account.
(ii) Indian firms borrowing from international banks raises the liabilities of India to foreigners. This is a capital inflow on the credit side of the capital account.
(iii) Remittances by Indians working abroad are money sent home without any return. This is a unilateral transfer, so it belongs to the current account.
(iv) Repayment of government loans to the IMF reduces the liability of India. This is a capital outflow, so it is a debit entry in the capital account.

Step 3: Pick the matching option:
Capital account items are (i), (ii) and (iv). Only (iii) belongs elsewhere.
So the correct option is (D).

Step 4: Why the other options are wrong:
(A) (i) and (iii): it includes remittances, which are in the current account, and it leaves out (ii) and (iv).
(B) Only (iii): remittances are the one item that is not a capital account entry.
(C) (ii) and (iii): it wrongly adds remittances and misses (i) and (iv).

Final Answer:
Transactions (i), (ii) and (iv) are capital account items. This is option (D).