Read the following statements carefully :
Statement I : Trade in services includes both factor income and non-factor income transactions.
Statement II : Current Account includes transactions related to goods, services and unilateral transfers.
In the light of the given statements, choose the correct option from the following :
Read the following statements carefully :
Statement I : Trade in services includes both factor income and non-factor income transactions.
Statement II : Current Account includes transactions related to goods, services and unilateral transfers.
In the light of the given statements, choose the correct option from the following :
Show Hint
- Statement I is true and Statement II is false.
- Statement I is false and Statement II is true.
- Both Statements I and II are true.
- Both Statements I and II are false.
The Correct Option is C
Solution and Explanation
The current account of the BoP has four parts: trade in goods (visible items), trade in services, income, and unilateral transfers (gifts and remittances).
Step 2: Check Statement I:
Trade in services is the sale and purchase of invisible items. It includes non-factor services such as shipping, banking, insurance, tourism and software services.
It also covers factor income, such as interest, profit and dividend, and the income of employees working abroad.
So Statement I is true.
Step 3: Check Statement II:
The current account records goods, services (with income) and unilateral transfers.
Statement II matches this list. So Statement II is true.
Step 4: Why the other options are wrong:
(A) calls Statement II false, but it is true.
(B) calls Statement I false, but it is true.
(D) calls both false, but both are true.
Final Answer:
Both statements are true. This is option (C).
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