Question

In the Balance of Payments, transactions involving bonds and equity shares are recorded under which of the following accounts?

• A. Trading Account
• B. Financial Account
• C. Current Account
• D. Errors and Omissions

Hint:

Bonds and equity shares are financial assets, so their transactions are recorded in the Financial Account of Balance of Payments.

Answer 1

The Correct Option is B

Step 1: Understanding the Concept:
The Balance of Payments (BoP) consists of the Current Account and the Capital/Financial Account. The latter records transactions that change the ownership of assets and liabilities.
Step 2: Detailed Explanation:
- Current Account: Records trade in goods, services, and transfers (income and gifts).
- Financial Account: Records the flow of capital and the change in ownership of international assets.
- Bonds and equity shares are financial assets. When an entity in one country buys shares or bonds in another, it is a financial investment (FPI or FDI).
- Since these transactions involve the transfer of ownership of financial claims/assets, they are recorded in the Financial Account.
Step 3: Final Answer:
Bonds and shares are capital assets, hence they fall under the Financial/Capital account category.
Therefore, option (B) is correct.