Civil Services Prep

Prelims 2013 · Economy · Question 6

Which of the following constitute Capital Account?

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

Select the correct answer using the codes given below:

  1. 1, 2 and 3
  2. 1, 2 and 4
  3. 2, 3 and 4
  4. 1, 3 and 4

Answer

1, 2 and 4

  1. Foreign Loans – These create external liabilities/assets and are recorded in the Capital/Financial Account of BoP. Verdict: Correct.

  2. Foreign Direct Investment (FDI) – FDI is an investment flow affecting ownership of assets and is part of the Capital/Financial Account. Verdict: Correct.

  3. Private Remittances – These are unilateral transfers with no asset-liability change, so they come under the Current Account. Verdict: Incorrect.

  4. Portfolio Investment – Purchase/sale of financial assets like shares and bonds is included in the Capital/Financial Account. Verdict: Correct.

Hence, items 1, 2 and 4 constitute Capital Account.

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