Skip to content

Home › Exam notes › UPSC Civil Services › Balance of Payments

Balance of Payments

Indian Economy

Useful for: UPSC Civil Services

हिंदी में पढ़ें

Overview

The balance of payments records a country’s transactions with the rest of the world in the current, capital and financial accounts.

Key points

Current account: trade in goods and services, primary income (investment income) and secondary income (remittances, transfers).
Financial account: FDI, portfolio investment, loans and changes in reserves.
FDI is generally 10% or more of equity in an enterprise; below that it is portfolio investment.
India moved to market-determined exchange rates (LERMS 1992, unified 1993) and current-account convertibility in 1994.
The capital account is only partially convertible.
The 1991 crisis (very low reserves) triggered liberalisation.

Practice MCQs

From the perspective of definition and scope, which one of the following statements about Balance of Payments is correct?
1. A current-account deficit automatically implies that a country has no capital inflows.
2. Balance of Payments is unrelated to institutions, processes or real-world applications.
3. Balance of Payments has no exceptions or limitations in exam analysis.
4. The current account records trade in goods and services, primary income and transfers under standard accounting.
Read chapter notes · Similar questions
Show answer
Answer: (d) The current account records trade in goods and services, primary income and transfers under standard accounting.. The current account records trade in goods and services, primary income and transfers under standard accounting.
Consider the following statements on Balance of Payments and Banking & Money, focusing on definition and scope: 1. A current-account deficit automatically implies that a country has no capital inflows. 2. Banks can create unlimited credit without capital, liquidity, regulation or borrower demand constraints. Which of the statements given above is/are correct?
1. 1 only
2. 2 only
3. Both 1 and 2
4. Neither 1 nor 2
Read chapter notes · Similar questions
Show answer
Answer: (d) Neither 1 nor 2. Neither statement is correct; both are common misconceptions.

More topics in this chapter

Notes and questions are written by Kundali IQ for practice. They are not official papers; always check the latest official notification for the syllabus and pattern.