Which of the following constitute Capital Account? 1. Foreign Loans

Which of the following constitute Capital Account?

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1. Foreign Loans
2. Foreign Direct Investment
3. Private Remittances
4. Portfolio Investment

Select the correct answer using the codes given below.

1, 2 and 3

1, 2 and 4

2, 3 and 4

1, 3 and 4

Answer is Right!

Answer is Wrong!

This question was previously asked in

UPSC IAS – 2013

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The Capital Account of the Balance of Payments records transactions involving changes in ownership of foreign financial and non-financial assets. Foreign Loans (both inflow and outflow), Foreign Direct Investment (FDI), and Portfolio Investment (like buying stocks or bonds) are all classified under the Capital Account as they represent changes in assets or liabilities. Private Remittances, which are unilateral transfers of money, are part of the Current Account.

The Balance of Payments (BoP) summarizes all economic transactions between residents of a country and the rest of the world over a period. It consists of the Current Account and the Capital Account. The Capital Account deals with cross-border investment flows and changes in assets/liabilities.

The Current Account records transactions related to trade in goods and services, income receipts and payments, and current transfers (like remittances, grants). The Capital Account, broadly defined, includes capital transfers (like debt forgiveness, grants) and investment flows (FDI, portfolio investment, other investments like loans and deposits). In India’s BoP presentation, the Capital Account is mainly composed of Investment (FDI, Portfolio, Other) and Loans, and Banking Capital.

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