Question

Consider the following statements about Export of cotton Textiles.

1. It is shown in the debit side of the current account.
2. It reduces the balance of payment deficit.
3. It is shown in the credit side of the current account.

Which of the following statements are true?

Options

• iii only

• i and ii

• ii and iii

• None of these

Answer 1

iii only

Explanation:

The current account of the BoP tracks exports and imports of visible and invisible goods, as well as unilateral transfers. Export and import of goods account for a significant portion of foreign trade transactions (visible items). Payment for products imported is recorded on the negative side (debit items), whereas receipts from exports are recorded on the positive side (credit items) (credit items). The balance of commerce is the sum of these observable exports and imports (or trade balance). The export of cation textiles results in a foreign exchange inflow, which is recorded as a credit item.