Question

What does the current account of a country's Balance of Payments record?

Options

• Only one-way payments such as gifts, remittances, grants, and donations

• Only the exports and imports of physical goods between countries

• Trade in goods and services and transfer payments between a country and the rest of the world

• Purchases and sales of financial assets between residents and non-residents

Answer 1

The current account records trade in goods and services and transfer payments between a country and the rest of the world. It comprises four components: goods, services, factor income, and unilateral transfers. Transactions in financial assets fall under the financial account, not the current account.