Current Account vs Capital Account

Capital Account

Current account deficit narrows to 1.2% of GDP at $10.5 billion in Oct-Dec: RBI.

 Current AccountCapital Account
  DefinitionCurrent Account mainly focuses on recording the export and import of merchandise along with any unilateral transfers that are completed within the year by a country.  Capital Account mainly focuses on recording the trading of foreign assets and liabilities during a year by a country.
  Implication  Reflects the total net income of a country within a year. Transactions are usually more immediate and visible  Reflects the net change in the ownership of national assets of a country within a year. Not as immediate and invisible as the current account.  
    Components  Export and import of goods and services Investment income Current transfers    Foreign direct investment Portfolio investment Loans by the government of one country to another    
  BalanceIf the current account balance is negative, then a country is a net borrower. Similarly, if the account balance is positive, then the country is a net lender.  If there is a surplus in the capital account, it indicates an inflow of money for a country. Similarly, if there is a deficit in the capital account, it indicates an outflow of currency from the country.  

Source: The Indian Express


Previous Year Question

In the context of India, which of the following factors is/are contributor/ contributors to reducing the risk of a currency crisis?
1. The foreign currency earnings of India’s IT sector.
2. Increasing government expenditure.
3. Remittances from Indians abroad.
Select the correct answer using the code given below:

[UPSC Civil Service Exam – 2019 Prelims]

(a) 1 only
(b) 1 and 3 only
(c) 2 only
(d) 1, 2 and 3

Answer: (b)
Explanation:
Statement 2 is not correct.
Government expenditure is not likely to reduce currency risks as increase in government expenditure does not directly affect the demand and supply of rupee


Which of the following are the components of Current Account Deficit?

  1. Export and import of goods and services
  2. Investment income
  3. Current transfers

Select the correct answer using the code given below:

 
 
 
 

Question 1 of 1

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