In the BoP statement, current account includes:
(i) Merchandise invisible items
(ii) Government loans from abroad
(iii) Foreign direct investment

Question

In the BoP statement, current account includes: 
(i) Merchandise invisible items 
(ii) Government loans from abroad 
(iii) Foreign direct investment

Accepted Answer

The correct option is 1: (i) only

The Balance of Payments (BoP) statement systematically records all economic transactions between the residents of a country and the rest of the world over a specified period. It is primarily divided into two main parts: the Current Account and the Capital Account. The Current Account records the trade in goods and services, as well as unilateral transfers, and represents transactions that do not give rise to future claims. "Merchandise invisible items" refers to the combined value of trade in services (invisibles like shipping, insurance, banking, and tourism) and trade in goods (merchandise), which are the core components of the Current Account. Therefore, item (i) is accurately included in the Current Account.

The incorrect option is 2: Both (i) and (ii)
This option is incorrect because, while (i) merchandise and invisible items belong to the Current Account, item (ii) Government loans from abroad represents debt-creating transactions. These transactions involve future repayment obligations and interest payments, which are characteristic features of the Capital Account, not the Current Account.

The incorrect option is 3: Both (ii) and (iii)
This option is incorrect as both item (ii) Government loans from abroad and item (iii) Foreign direct investment (FDI) are classified under the Capital Account of the BoP. The Capital Account records international flows of funds that involve changes in a country's assets and liabilities, such as loans and various forms of investment like FDI.

The incorrect option is 4: All of (i), (ii) and (iii) above
This is incorrect because it falsely includes item (ii) Government loans from abroad and item (iii) Foreign direct investment. Since both loans and investments create assets or liabilities for the nation, they are exclusively recorded in the Capital Account, and thus, only item (i) belongs to the Current Account.