Question

Discuss the various components of the current account of the balance of payments.

Explain the components of the current account of the balance of payments.

Answer 1

1. Merchandise: It refers to all of the export and import items that are visible, which is why it is also known as “visible trade”. A current account that displays visible imports and exports is frequently referred to as a balance of trade account.
2. Invisible: It includes the following primary services: travel, transportation, insurance, and so on. Services provided to the rest of the world are considered exports, while services received from the rest of the world are considered imports. It encompasses all such items that are provided to the rest of the world or received from the rest of the world in the form of services.
3. Transfers: It refers to unilateral transfers, i.e., gifts or donations. These are broadly divided as official transfers and private transfers.
4. Investment income: It alludes to revenue from profit, interest, and rent. Our nation’s income is displayed as receipts, while the income we receive from the outside world is displayed as payments.
5. Compensation of employees: It refers to the money received or disbursed to the rest of the globe in the form of salaries and wages.