Q. The balance of payments of a country is a systematic record of (UPSC Prelims 2013)
Answer:
all import and export transactions of a country during a given period of time, normally a year
Notes: The correct answer is
[A] all import and export transactions of a country during a given period of time, normally a year. The Balance of Payments (BoP) is a comprehensive statistical statement that summarizes all economic transactions between residents of a country and the rest of the world.
- Definition and Scope (Statement A is Correct): The BoP acts as a double-entry bookkeeping system. It records not just the movement of physical goods (exports/imports), but also services, transfer payments (like gifts or remittances), and capital transfers (like FDI or loans). It provides a snapshot of a nation’s financial health and its economic relationship with the global market.
- Merchandise Trade (Statement B is Incorrect): Recording only goods exported (and imported) refers to the Balance of Trade, which is merely a subset of the BoP. The BoP is much broader as it includes "invisibles" like services and financial transfers.
- Government Transactions (Statement C is Incorrect): While government-to-government transactions (like foreign aid) are included in the BoP, they represent only a small fraction. The BoP primarily tracks transactions made by individuals, businesses, and the government alike.
- Capital Movements (Statement D is Incorrect): Capital movements represent the Capital Account of the BoP. However, the BoP also includes the Current Account, which covers trade in goods and services. Therefore, D is incomplete.
Components of BoP:- Current Account: Includes Trade in Goods (Merchandise), Trade in Services (Invisibles), and Transfer Payments.
- Capital Account: Includes Foreign Direct Investment (FDI), Foreign Portfolio Investment (FPI), External Commercial Borrowings (ECB), and changes in Foreign Exchange Reserves.
In an ideal accounting sense, the BoP should always sum to zero, meaning the debits and credits should balance. If a country has a deficit in its Current Account, it must be offset by a surplus in its Capital Account (e.g., by borrowing or attracting investment).