Question

Read the following statements: Assertion and Reason (R). Choose the correct option from those given below:
Assertion : Unilateral Transfers are recorded in the Current Account of the Balance of Payments (BoP) of a nation.
Reason (R): Capital account records transactions which cause a change in the assets or liabilities of the country.

• A. Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
• B. Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
• C. Assertion (A) is true, but Reason (R) is false.
• D. Assertion (A) is false, but Reason (R) is true.

Hint:

Unilateral transfers are recorded in the Current Account, while the Capital Account deals with investments, loans, and changes in assets and liabilities.

Answer 1

The Correct Option is B

Step 1: Evaluating the Assertion.
Unilateral transfers are "one-way" transactions such as gifts, donations, or personal remittances. These do not involve a quid pro quo and are categorized under the Current Account of the BoP. Hence, the Assertion is true.
Step 2: Evaluating the Reason.
The Capital Account is responsible for tracking transactions that alter the international asset or liability position of a country, such as loans and investments. This statement is also factually correct.
Step 3: Relationship between the two.
Although both statements are true, the Reason describes the nature of the Capital Account, which does not explain why unilateral transfers are placed in the Current Account. The two statements describe different components of the BoP independently.
Final Answer: Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).