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Question
Answer the following question.
Discuss the various components of the current account of the balance of payment.
Solution
(i) Merchandise: It refers to all such items of exports and imports which are visible and therefore also called Visible Trade’ relating to exports and imports. Current account showing export and import of visible is often referred to balance of trade account.
(ii) Invisible: It refers to all such items which are rendered to rest of the world or received from the rest of the world in the form of services they include the following principal services like travel, transport alias insurance asking and services rendered to the rest of the world are treated like exports and the services received from the rest of the world are treated as imports.
(iii) Transfers: It refers to unilateral transfers i.e., gifts or donations.
These are broadly divided as
(a) official transfers
(b) private transfers.
(iv) Investment income: It refers to income by way of rent, interest and profit. Income earned by our country is shown as receipts, while income earned from the rest of the world from our country is shown as payments.
(v) Compensation of employees: It refers to the income earned or paid to the rest of the world by way of wages and salaries.
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