The correct option is 2 only
Explanation
In the Balance of Payments (BoP) framework, transfer payments (also known as unilateral transfers) are recorded under the Current Account. These transactions involve the transfer of money, goods, or services from one entity to another without any corresponding return of economic value.
- Statement 1 is Incorrect: Transfer payments are receipts that residents of a country receive "for free." They are unilateral in nature, meaning the recipient receives value without incurring a liability or an obligation to provide anything in return. Common examples include remittances from workers abroad, gifts, and grants.
- Statement 2 is Correct: The defining feature of a transfer payment is the absence of a quid pro quo (something for something). Unlike trade transactions where goods or services are exchanged for money, transfer payments do not require the recipient to provide any goods, services, or assets in return.
- Statement 3 is Incorrect: Payments made for the import of capital goods are commercial transactions recorded under the "Trade in Goods" (Visible Trade) section of the Current Account. Transfer payments consist exclusively of one-way transfers such as remittances, donations, and official aid, not payments for commercial imports.
Key Takeaway: Transfer payments are unilateral transactions recorded in the Current Account of the BoP, characterized by the receipt of value without any corresponding exchange of goods, services, or assets (e.g., remittances, gifts).