Module: General Practice
Q35: Identify the transaction that will be recorded in the Current Account, despite being related to a foreign investment or loan.
✅ Correct Answer: C
This is the "Service vs.
Capital" distinction.
The Principal (Loan/Equity): Moves into the Capital Account because it creates/extinguishes a liability or asset.
The Servicing (Interest/Dividend): Moves into the Current Account (under "Income" or Primary Income). Determining the "cost of capital" (interest/dividend) is an expenditure (flow), similar to paying for a service.
It does not reduce the principal debt itself; it is the fee for using the capital.
In FY 2024-25, India's "Primary Income" account often runs a deficit because the outflow of interest/dividends usually exceeds the inflow from Indian assets abroad.
Capital" distinction.
The Principal (Loan/Equity): Moves into the Capital Account because it creates/extinguishes a liability or asset.
The Servicing (Interest/Dividend): Moves into the Current Account (under "Income" or Primary Income). Determining the "cost of capital" (interest/dividend) is an expenditure (flow), similar to paying for a service.
It does not reduce the principal debt itself; it is the fee for using the capital.
In FY 2024-25, India's "Primary Income" account often runs a deficit because the outflow of interest/dividends usually exceeds the inflow from Indian assets abroad.