UPSC Prelims 2013 · GS Paper I
Question 56: Economy and Social Development
Which of the following constitute Capital Account?
- 1.Foreign Loans
- 2.Foreign Direct Investment
- 3.Private Remittances
- 4.Portfolio Investment
Select the correct answer using the codes given below.
AnswerUPSC’s answer is (b).
The capital account records flows that change a country's assets or liabilities abroad: foreign loans, foreign direct investment and portfolio investment all fall here. Private remittances are one-way transfers of money by individuals and are recorded in the current account. So the capital account has items 1, 2 and 4.
- 1. Foreign loans are capital account items.
- 2. FDI is a capital account item.
- 3. Private remittances are current account transfers.
- 4. Portfolio investment is a capital account item.
How you could have got this
- If you were sure statement 3 is not correct, (a), (c) and (d) go: each of them includes 3.
What you needed to know: Private remittances are current account transfers.
Only (b) is left. You didn’t need statements 1, 2 or 4.
Which options go is worked out from UPSC’s key and the options, not by a model.
Why each option is right or wrong
- (a) Wrong. Private remittances belong to the current account.
- (b) Correct. Loans, FDI and portfolio investment are capital account items.
- (c) Wrong. Private remittances do not belong here, and foreign loans are left out.
- (d) Wrong. Private remittances do not belong here, and FDI is left out.
Answer: UPSC’s key. Explanation: written by UPSC Grade, not by UPSC.
Source: UPSC, Civil Services (Preliminary) Examination 2013, General Studies Paper I, Series A. The paper on upsc.gov.in.