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Which among the following is NOT correctly matched w.r.t. Balance of payments?
- a)Import of goods and services - Debit in the current account
- b)Receipts of transfer payment - Credit in the current account
- c)Portfolio investment payments - Debit in the current account
- d)Direct investment receipt - Credit in the capital account
Correct answer is option 'C'. Can you explain this answer?
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Which among the following is NOT correctly matched w.r.t. Balance of p...
The balance of payments account for one country records all the payments that effect funds transfers between that nation and the rest of the world. Payments from foreigners to the domestic country are credited to the account. These include all foreign payments for exports, payments from foreign tourists for services, investment income made by the domestic country in foreign markets, unilateral transfers and capital inflows.
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Which among the following is NOT correctly matched w.r.t. Balance of p...
Understanding Balance of Payments (BoP)
The Balance of Payments is a comprehensive record of a country's economic transactions with the rest of the world. It consists of two main accounts: the current account and the capital account.
Correct Matchings in Balance of Payments
- Import of goods and services: This is recorded as a debit in the current account because it represents an outflow of domestic currency when goods and services are purchased from abroad.
- Receipts of transfer payments: This is a credit in the current account, as it includes money received from abroad, such as remittances from citizens working in other countries.
- Direct investment receipt: This is recorded as a credit in the capital account, reflecting money flowing into the country from foreign investments.
Incorrect Matching Explained
- Portfolio investment payments: The statement claims it is a debit in the current account, which is incorrect. Portfolio investments refer to investments in financial assets such as stocks and bonds. Payments related to these investments, like dividends or interest received, should be recorded in the capital account, not the current account. Thus, portfolio investment payments do not directly affect the current account.
Conclusion
In summary, option 'C' is correctly identified as the incorrect matching in the context of the Balance of Payments. Understanding these distinctions is crucial for accurate analysis and reporting in economics, especially for financial examinations.
The Balance of Payments is a comprehensive record of a country's economic transactions with the rest of the world. It consists of two main accounts: the current account and the capital account.
Correct Matchings in Balance of Payments
- Import of goods and services: This is recorded as a debit in the current account because it represents an outflow of domestic currency when goods and services are purchased from abroad.
- Receipts of transfer payments: This is a credit in the current account, as it includes money received from abroad, such as remittances from citizens working in other countries.
- Direct investment receipt: This is recorded as a credit in the capital account, reflecting money flowing into the country from foreign investments.
Incorrect Matching Explained
- Portfolio investment payments: The statement claims it is a debit in the current account, which is incorrect. Portfolio investments refer to investments in financial assets such as stocks and bonds. Payments related to these investments, like dividends or interest received, should be recorded in the capital account, not the current account. Thus, portfolio investment payments do not directly affect the current account.
Conclusion
In summary, option 'C' is correctly identified as the incorrect matching in the context of the Balance of Payments. Understanding these distinctions is crucial for accurate analysis and reporting in economics, especially for financial examinations.
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Which among the following is NOT correctly matched w.r.t. Balance of payments?a)Import of goods and services - Debit in the current accountb)Receipts of transfer payment - Credit in the current accountc)Portfolio investment payments - Debit in the current accountd)Direct investment receipt - Credit in the capital accountCorrect answer is option 'C'. Can you explain this answer?
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