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.