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| 1. |
Distinguish between current account and capital account of balance of payments account. Is import of machinery recorded in current account or capital account? |
| Answer» Solution :The FOLLOWING are the major differences between current account and capital account:Current account records the trading in goods and services in the current PERIOD. Capital Account records the movement of capital in and out the economy.Current Account shows the net income of the country, whereas Capital Account shows the change in the ownership of the nation’s assets.Current Account is mainly concerned with RECEIPTS and payment of cash and non-capital items. Conversely, Capital Account has thoroughly considered the sources and application of capital.The key components of current account are export and import of goods and services, the investment the income and current transfers. On the other hand, foreign direct investment, portfolio investment and Loans by the government of one country to the government of another country are the key components of Capital Account.Import of MACHINERY is recorded in Capital Account. | |