International TradePYQ - May 2022 (Inter)Question 169 of 20
All Questions

Current Account of Balance of Payments includes:

Options

AMerchandise Trade
BFDI
CFII
DExternal Loans
For any discrepancies in this question, email contact@cadada.in

Correct Answer

✅ Option a — Merchandise Trade

All Options:

  • AMerchandise Trade
  • BFDI
  • CFII
  • DExternal Loans

Detailed Solution & Explanation

To determine the correct answer, let's break down the components of the Balance of Payments. • The Balance of Payments is a statistical statement that summarizes a country's economic transactions with the rest of the world over a specific period. • It is divided into two main accounts: the Current Account and the Capital Account. • The Current Account includes all transactions that involve the export and import of goods and services, income, and transfers. • Merchandise trade, which refers to the export and import of physical goods, is a key component of the Current Account. • This is because merchandise trade directly affects a country's trade balance, which is a major part of the Current Account. On the other hand, Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII) are part of the Capital Account, as they involve the flow of capital into or out of a country. • External Loans can also be part of the Capital Account, depending on the context, as they represent a flow of capital. Therefore, the correct answer is related to merchandise trade, as it is a direct component of the Current Account.

About This Chapter: International Trade

Paper

Paper 4: Business Economics

Weightage

10%

Key Topics

Theories, Trade Policy, Exchange Rates

This chapter explores trade between nations — why countries trade, the theories of Absolute and Comparative Advantage, Balance of Payments, Exchange Rate systems (Fixed vs Flexible), and India's trade policy including tariffs, quotas, and WTO rules.

View Official ICAI Syllabus

Exam Strategy Tip

Understand Comparative Advantage theory thoroughly — it's the foundation of international trade. Also focus on the Balance of Payments structure and what causes deficits.

More Questions from International Trade

Exchange rate determined by market forces is called:

Tariffs generally:

Balance of Trade refers to:

WTO was established in:

Devaluation of currency encourages:

Comparative Cost Advantage theory was given by:

Ready to Master International Trade?

Practice all 20 questions with instant feedback, earn XP, track your streaks, and ace your CA Foundation exam.

Start Practicing — It's Free