Previous Year Question
The Balance of Payment (BoP) of a country is a systematic record of
all import and export transactions of a country during a given period of time, normally a year
goods exported from a country during a year
economic transactions between the government of one country and another
capital movements from one country to another
Correct Answer: A
Detailed Solution
The Balance of Payments—BoP is a systematic statistical record of all economic transactions between the residents of an economy and the rest of the world during a specified period.
Residence is determined not merely by citizenship but primarily by the person’s or entity’s centre of predominant economic interest.
The BoP covers:
Imports and exports of goods.
Imports and exports of services.
Interest, dividends, profits and compensation of employees.
Remittances and other transfers.
Foreign Direct Investment—FDI.
Portfolio investment.
External loans, banking capital and deposits.
Changes in reserve assets.
Principal accounts of the BoP
1. Current Account
It records transactions relating to goods, services, primary income and secondary income:
Current Account = Goods + Services + Primary Income + Secondary Income
2. Capital Account
Under the modern IMF classification, it records capital transfers and transactions in non-produced non-financial assets.
3. Financial Account
It records FDI, portfolio investment, financial derivatives, other investment and changes in reserve assets.
4. Errors and Omissions
Because BoP data are collected from different sources, statistical discrepancies can arise. These are adjusted through net errors and omissions.
Testing the options
Option (b) covers only exports of goods, whereas the BoP also includes imports, services, income, transfers and financial flows.
Option (c) is restricted to transactions between governments. The BoP includes cross-border transactions undertaken by individuals, companies, banks and governments.
Option (d) covers only capital movements, while the scope of the BoP is considerably broader.
Option (a) uses the expression “all import and export transactions.” Technically, the BoP is not confined to merchandise imports and exports; it covers all current, capital and financial transactions. Nevertheless, option (a) is the most comprehensive and intended answer among those given.
Current position (2026)
The BoP may be compiled not only annually but also on a quarterly basis. The RBI publishes quarterly and annual data on India’s Balance of Payments. The IMF’s Balance of Payments and International Investment Position Manual—BPM6 remains the principal international standard for BoP compilation.