Question

Which are the components of Capital Account?
A. External Commercial Borrowing
B. Government Aid
C. Equity Capital
D. Gifts, Remittances and Grants

• A. A, B, C
• B. A, B, D
• C. A, C, D
• D. B, C, D

Hint:

Remember: \textbf{Capital Account deals with ownership of assets and liabilities}, while \textbf{Current Account deals with income, expenditure, and unilateral transfers}.

Answer 1

The Correct Option is A

Step 1: Understand the meaning of Capital Account.
The Capital Account is a component of the Balance of Payments of a country.
It records all transactions that lead to a change in the ownership of assets and liabilities between residents and non-residents.
These transactions are generally long-term in nature and involve capital inflows and outflows.
Step 2: Analyse Statement A — External Commercial Borrowing.
External Commercial Borrowings refer to loans taken by a country or its firms from foreign sources.
These borrowings increase foreign liabilities and bring capital inflow into the country.
Hence, External Commercial Borrowing is an important component of the Capital Account.
Step 3: Analyse Statement B — Government Aid.
Government Aid received from foreign governments or international institutions leads to capital inflow.
Such aid increases the country’s foreign assets or reduces liabilities.
Therefore, Government Aid is recorded under the Capital Account.
Step 4: Analyse Statement C — Equity Capital.
Equity Capital includes foreign direct investment (FDI) and portfolio investment.
When foreign investors invest in domestic companies, it results in capital inflow.
Hence, Equity Capital is a major component of the Capital Account.
Step 5: Analyse Statement D — Gifts, Remittances and Grants.
Gifts, remittances, and grants generally involve unilateral transfers.
These are recorded under the Current Account, not the Capital Account.
Therefore, Statement D is not a component of the Capital Account.
Step 6: Identify the correct combination.
Statements A, B, and C are correct.
Statement D is incorrect.
Step 7: Final conclusion.
Thus, the correct answer is (A) A, B, C.