Expenditure towards the maintenance of embassies and diplomatic missions are included in which of the following accounts of the balance of payments.
Show Hint
- Current Account
- Capital Account
- Official Reserves Account
- Errors and Omissions Account
The Correct Option is A
Solution and Explanation
Step 1: Understanding the balance of payments accounts.
The balance of payments records all transactions between a country and the rest of the world. These transactions are categorized into different accounts:
- The current account includes trade in goods and services, income from abroad, and current transfers.
- The capital account includes capital transfers and the acquisition of non-produced, non-financial assets.
- The official reserves account records the transactions in foreign exchange reserves held by the government.
- The errors and omissions account adjusts for discrepancies in the balance of payments.
Step 2: Analysis of options.
- (A) Current account: This is correct. Expenditures on the maintenance of embassies and diplomatic missions are part of the current account, as they are services provided by the government.
- (B) Capital account: This is incorrect. The capital account deals with capital transfers and investment in non-financial assets, not service-related expenses.
- (C) Official Reserves Account: This is incorrect. The official reserves account deals with foreign exchange reserves, not current service expenses.
- (D) Errors and Omissions Account: This is incorrect. This account is used to correct discrepancies, not for recording regular expenditures.
Step 3: Conclusion.
The correct answer is (A), as expenditures related to the maintenance of embassies and diplomatic missions are recorded in the current account of the balance of payments.
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