Match List I with List II and select the correct answer using the code given below: List I | List II A. Indian buys a UK Car Company | 1. Credit in Current Account B. Sale of share of Indian company to Chinese customer | 2. Credit in Capital Account C. Export of Tea to UK | 3. Debit in Capital Account D. Import of Machinery from Germany | 4. Debit in Current Account

The correct Answer is A-3, B-2, C-1, D-4 Explanation The Balance of Payments (BoP) records all economic transactions between a country and the rest of the world over a period. It is divided into two main accounts: the Current Account and the Capital Account. The Current Account records transactions related to goods, services, income, and current transfers. The Capital Account records transactions related to financial assets and liabilities, including foreign direct investment (FDI), foreign portfolio investment (FPI), and external borrowings. Statement-wise Analysis 1. A. Indian buys a UK Car Company - Correct: This transaction involves an Indian entity acquiring a foreign asset (a UK company). This is a form of Foreign Direct Investment (FDI) outflow from India. An outflow of capital is recorded as a debit in the Capital Account. - Matching: 3. Debit in Capital Account 2. B. Sale of share of Indian company to Chinese customer - Correct: This transaction involves a foreign entity (Chinese customer) acquiring shares of an Indian company. This represents an inflow of foreign investment into India, specifically Foreign Portfolio Investment (FPI) or FDI depending on the stake. An inflow of capital is recorded as a credit in the Capital Account. - Matching: 2. Credit in Capital Account 3. C. Export of Tea to UK - Correct: Export of goods (tea) from India to the UK generates foreign exchange earnings for India. This is a transaction involving goods and is recorded as a credit in the Current Account. - Matching: 1. Credit in Current Account 4. D. Import of Machinery from Germany - Correct: Import of goods (machinery) from Germany by India results in an outflow of foreign exchange from India. This is a transaction involving goods and is recorded as a debit in the Current Account. - Matching: 4. Debit in Current Account Therefore, the correct matching is A-3, B-2, C-1, D-4. Key Takeaway Transactions involving goods, services, income, and current transfers are recorded in the Current Account, while transactions involving financial assets and liabilities (like investments) are recorded in the Capital Account; inflows are credits, and outflows are debits.

Match List I with List II and select the correct answer using the code given below: List I | List II A.… - NCERT Class 12 Economics MCQ

NCERT Class 12 Economics — Chapter 8: Open Economy Macroeconomics

mcqmedium

Match List I with List II and select the correct answer using the code given below:

List I	List II
A. Indian buys a UK Car Company	1. Credit in Current Account
B. Sale of share of Indian company to Chinese customer	2. Credit in Capital Account
C. Export of Tea to UK	3. Debit in Capital Account
D. Import of Machinery from Germany	4. Debit in Current Account

NCERT textbook question

From NCERT Introductory Macroeconomics · Page 4

Options

AA-3, B-2, C-1, D-4
BA-4, B-2, C-1, D-3
CA-3, B-1, C-2, D-4
DA-2, B-3, C-1, D-4

Did you get this right?

Solution

The correct Answer is A-3, B-2, C-1, D-4

Explanation

The Balance of Payments (BoP) records all economic transactions between a country and the rest of the world over a period. It is divided into two main accounts: the Current Account and the Capital Account. The Current Account records transactions related to goods, services, income, and current transfers. The Capital Account records transactions related to financial assets and liabilities, including foreign direct investment (FDI), foreign portfolio investment (FPI), and external borrowings.

Statement-wise Analysis

A. Indian buys a UK Car Company
- Correct: This transaction involves an Indian entity acquiring a foreign asset (a UK company). This is a form of Foreign Direct Investment (FDI) outflow from India. An outflow of capital is recorded as a debit in the Capital Account.
- Matching: 3. Debit in Capital Account
B. Sale of share of Indian company to Chinese customer
- Correct: This transaction involves a foreign entity (Chinese customer) acquiring shares of an Indian company. This represents an inflow of foreign investment into India, specifically Foreign Portfolio Investment (FPI) or FDI depending on the stake. An inflow of capital is recorded as a credit in the Capital Account.
- Matching: 2. Credit in Capital Account
C. Export of Tea to UK
- Correct: Export of goods (tea) from India to the UK generates foreign exchange earnings for India. This is a transaction involving goods and is recorded as a credit in the Current Account.
- Matching: 1. Credit in Current Account
D. Import of Machinery from Germany
- Correct: Import of goods (machinery) from Germany by India results in an outflow of foreign exchange from India. This is a transaction involving goods and is recorded as a debit in the Current Account.
- Matching: 4. Debit in Current Account

Therefore, the correct matching is A-3, B-2, C-1, D-4.

Key Takeaway

Transactions involving goods, services, income, and current transfers are recorded in the Current Account, while transactions involving financial assets and liabilities (like investments) are recorded in the Capital Account; inflows are credits, and outflows are debits.

Your note

More from Chapter 8: Open Economy Macroeconomics

With reference to 'Transfer Payments' in the Balance of Payments, consider the following statements: 1. They require the recipient to provide goods or services in return. 2. They are receipts which the residents of a country get for free. 3. They consist exclusively of payments made for the import of capital goods. Which of the statements given above is/are correct?

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In a fixed exchange rate system, if there is an excess supply of foreign currency, the Central Bank must:

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Consider the effect of income on the exchange rate. If domestic income increases: 1. Consumer spending on imported goods decreases significantly. 2. The demand curve for foreign exchange shifts to the right. 3. The domestic currency is likely to depreciate. Which of the statements given above is/are correct?

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Which of the following items are included in the 'Current Account' of the Balance of Payments? 1. Export of goods 2. Import of services 3. Remittances and grants 4. External Commercial Borrowings

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Consider the following statements regarding the Balance of Trade (BOT): 1. It is the difference between the value of exports and imports of goods only. 2. Export of goods is entered as a debit item in BOT. 3. A Trade Deficit arises if a country imports more goods than it exports. Which of the statements given above is/are correct?

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