Capital Account Components
Question
Which of the following constitute Capital Account?
Select the correct answer using the codes given below.
- 1.
Foreign Loans constitute Capital Account
- 2.
Foreign Direct Investment constitutes Capital Account
- 3.
Private Remittances constitute Capital Account
- 4.
Portfolio Investment constitutes Capital Account
Options
1, 2 and 3
1, 2 and 4
2, 3 and 4
1, 3 and 4
Explanation
The Capital Account of the Balance of Payments records international transactions in assets and liabilities. Foreign Loans (1) are part of the capital account as they involve borrowing/lending. Foreign Direct Investment (2) is a major component of the capital account, representing investment in productive assets. Portfolio Investment (4) includes stocks, bonds, and securities traded internationally and is part of the capital account. However, Private Remittances (3) are transfers of money by individuals living abroad to their home country and are recorded in the Current Account (specifically in unrequited transfers), not the Capital Account. Therefore, statements 1, 2, and 4 are correct. > Capital Account tracks capital flows (FDI, loans, portfolio investment) while remittances flow through the current account as income transfers. Answer: (b).
Question details
Year
2013
Paper
GS Paper 1
Question
Q56
Subject
Economy
Sub-topic
Balance of Payments and Capital Flows
Type
Statement-based
Difficulty
Medium
Nature
Static
Source hint
NCERT Economics Ch.13
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