Macro

Balance of Payments

Easy

Read the passage carefully and answer the questions based on the passage:

Accounts in Balance of Payments

The current account is the record of trade in goods and services and transfer payments. Trade in goods includes exports and imports of goods. Trade in services includes factor income and non-factor income transactions. Transfer payments are the receipts which the residents of a country get for free, without having to provide any goods or services in return. They could be given by the government or by private citizens living abroad. Capital Account records all international transactions of assets. The capital account is in balance when capital inflows are equal to capital outflows. The essence of international payments is that just like an individual who spends more than her income must finance the difference by selling assets or by borrowing, a country that has a deficit in its current account must finance it by selling assets or by borrowing abroad. Thus, any current account deficit must be financed by a capital account surplus, that is, a net capital inflow. Apart from the current and capital accounts, there is a third element in the balance of payments called errors and omissions.

If India's current account balance is $-58$ million and the capital account balance is $62.5$ million. What will be the errors and omissions to have an overall balance in balance of payments?

$120.5$ million.

$-120.5$ million.

$-4.5$ million.

$4.5$ million.

✅ Correct Option: 3

Option 1 -> This would imply a large positive adjustment, which doesn't balance the accounts.

Option 2 -> This negative value is too large and would create an imbalance.

Option 3 -> Current Account (-58) + Capital Account (62.5) + Errors and Omissions (-4.5) = 0, achieving balance.

Option 4 -> A positive 4.5 would result in a net surplus of 9 million, not balancing the BoP.

Hence, Option 3: $-4.5$ million -> The Balance of Payments identity requires: Current Account + Capital Account + Errors and Omissions = 0. Substituting the given values: -58 + 62.5 + Errors and Omissions = 0. Solving: Errors and Omissions = -4.5 million. This negative entry compensates for the net surplus of 4.5 million from the current and capital accounts combined, ensuring the overall BoP balances to zero. -> correct

2025: 28 May Shift 1

It is difficult to record all international transactions accurately. Thus, there is a third element of Balance of Payment (BoP) (apart from the current and capital accounts) which adjusts inaccuracies to some extent that is called:

Reserves Change
Overall Balance
Errors and Omissions
Other Flows

2025: 29 May Shift 1

When the exchange rate of foreign currency increases due to managed floating rate it is known as_______.

2025: 31 May Shift 1

From the following statements choose the effects of devaluation of domestic currency.

(A) Exchange rate is fixed.

(B) Indian Government increases the exchange rate.

(D) The Exports of India will rise.

Choose the correct answer from the options given below:

2025: 13 May Shift 2

An increase in exchange rate implies that the price of foreign currency in terms of domestic currency has increased; this is called ........

2022: 19 July Shift 2

Indian Real Estate Company receives rent from Microsoft from London. This transaction will be recorded in __________ Account.

2025: 21 May Shift 1

Suppose that government bonds in country A pay 8 per cent rate of interest whereas equally safe bonds in country B yield 10 per cent. The interest rate differential is 2 per cent. Arrange the consequences of the same in sequential order.

(A) People will find investing in country B more attractive and will therefore demand less of country A's currency.

(B) Depreciation of country A's currency and an appreciation of country B's currency.

(C) Investors from country A will be attracted by the high interest rates in country B and will buy the currency of country B selling currency of country A.

(D) The demand curve for country A's currency will shift to the left and the supply curve will shift to the right.

Choose the correct answer from the options given below:

If India's current account balance is −58-58−58 million and the capital account balance is 62.562.562.5 million. What will be the errors and omissions to have an overall balance in balance of payments?

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CUET Economics Past Year Questions (Topic-Wise)

If India's current account balance is $-58$ million and the capital account balance is $62.5$ million. What will be the errors and omissions to have an overall balance in balance of payments?