With reference to Balance of Payments, which of the following constitutes/constitute the Current Account?
- 1.Balance of trade
- 2.Foreign assets
- 3.Balance of invisibles
- 4.Special Drawing Rights
Select the correct answer using the code given below.
Answer & explanation
Answer: (c) 1 and 3
The current account has two parts: the balance of trade (goods) and the balance of invisibles (services, income and transfers). Foreign assets and SDR holdings are capital-account or reserve items, so they are not part of it.
- ✓ 1. The balance of trade is the gap between exports and imports of goods (merchandise). It is the first component of the current account.
- ✗ 2. Buying or selling assets abroad is a capital-account transaction. It is not a current-account item.
- ✓ 3. The balance of invisibles covers services, income flows and transfers. It is the second component of the current account.
- ✗ 4. SDR balances are reserve assets. Changes in them are recorded under 'Movements in reserves', alongside the RBI's foreign currency assets, not in the current account.
Remember · Current account = trade balance (goods) + invisibles (services, income, transfers). Assets, loans, investments and reserves (including SDRs) belong to the capital account or reserves.
📘 Read it in NCERT: Class 12 Introductory Macroeconomics, Ch 6 (practise this chapter) · Class 12 Introductory Macroeconomics, Ch 6 (practise this chapter)
Sources
- NCERT Class 12 · Introductory Macroeconomics, Chapter 6 “Balance on Current Account has two components: • ·Balance of Trade or Trade Balance • ·Balance on Invisibles”
- NCERT Class 12 · Introductory Macroeconomics, Chapter 6 “purchase of assets or shares in foreign countries). Surplus in capital account arises when capital inflows are greater than capital outflows”
- MoSPI Statistical Year Book, Chapter 4: Balance of Payments ↗ “Movements in the reserves comprises changes in the foreign currency assets held by the RBI and SDR balances held by the Govt. of India.”
Question: UPSC Civil Services (Preliminary) 2014, General Studies Paper I. Explanation: Minimalist IAS, checked 25 Oct 2026 (how we verify). ·
