In the context of Balance of Payments accounting, which of the following transactions is/are NOT recorded under the Current Account?
Select all that apply.
GATE 2023 Question 56: Balance of payments and exchange rates
Answer and worked solution
Answer: (C) and (D)
The Current Account records trade in goods and services plus unilateral (one-way) transfers:
(A) Merchandise trade — a core Current Account item. Recorded under Current Account (not the answer, since the question asks what's NOT recorded there).
(B) Unilateral transfer payments — also part of the Current Account (e.g., remittances, foreign aid). Recorded under Current Account.
(C) Purchase of international financial assets — this is a Capital/Financial Account transaction (cross-border asset purchases), not Current Account. NOT recorded under Current Account.
(D) Purchase of foreign currency by the central bank — this is an official reserve transaction, recorded in the Capital/Financial Account (specifically the reserve assets sub-account), not the Current Account. NOT recorded under Current Account.
Therefore the transactions NOT recorded under the Current Account are (C) and (D).
The trap
Central bank foreign currency purchases can feel like they belong somewhere unusual/separate from ordinary Capital Account transactions given their policy nature, but they are structurally still a financial-asset transaction (reserve assets) and belong in the Capital/Financial Account, not the Current Account — students focused only on 'obvious' financial-asset purchases like (C) may miss that (D) belongs in the same non-Current-Account category.
Balance of payments and exchange rates has come up 120 times in 7 exams since 2007.
What this question tests
This question is on Balance of payments accounts and the current account, part of Balance of payments and exchange rates in International Economics.
How a country's transactions with the world are recorded.
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Question from the GATE 2023 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.