Module: General Practice
Q33: According to the conceptual framework of the Balance of Payments (BoP), which of the following constitutes the "Acid Test" for classifying a transaction under the Capital Account?
✅ Correct Answer: B
The fundamental distinction between Current and Capital accounts rests on the Asset-Liability Test.
Capital Account: Records all transactions that change the stock of assets or liabilities (e.g., taking a loan creates a liability; buying foreign shares creates an asset). In the Indian context (RBI Table 5.2), this broadly includes Foreign Investment (FDI/FPI), Loans (ECBs), and Banking Capital (NRI Deposits). Current Account: Records transactions that do not alter assets/liabilities but represent income, expenditure, or consumption (e.g., export receipts, import payments, interest payments). This definition aligns with the IMF Balance of Payments Manual (BPM6), though BPM6 technically splits this into "Capital Account" (Capital Transfers) and "Financial Account" (Investments). In India's standard reporting, the term "Capital Account" is used broadly to cover financial flows affecting claims.
Capital Account: Records all transactions that change the stock of assets or liabilities (e.g., taking a loan creates a liability; buying foreign shares creates an asset). In the Indian context (RBI Table 5.2), this broadly includes Foreign Investment (FDI/FPI), Loans (ECBs), and Banking Capital (NRI Deposits). Current Account: Records transactions that do not alter assets/liabilities but represent income, expenditure, or consumption (e.g., export receipts, import payments, interest payments). This definition aligns with the IMF Balance of Payments Manual (BPM6), though BPM6 technically splits this into "Capital Account" (Capital Transfers) and "Financial Account" (Investments). In India's standard reporting, the term "Capital Account" is used broadly to cover financial flows affecting claims.