Under the Balance of Payments (BoP) accounting

Solution

The Balance of Payments (BoP) tracks a country's economic transactions, with the Current Account covering goods, services, income, and transfers (trade in things we consume daily), while the Capital Account (often grouped with the Financial Account) records asset ownership changes like FDI, portfolio investments, and reserves (investment in long-term assets) As such, the capital account transactions include: ·        FDI and FPI: These involve cross-border ownership of assets (equity/debt) and are primary components of the Capital Account. ·        External Commercial Borrowings (ECB) and banking capital: These represent changes in a country's external liabilities/assets (loans and deposits) and are recorded in the Capital Account.    The transactions of current account are:

• Unilateral transfers (gifts, remittances): These are one-way transactions where no value is received in return. They are recorded in the Current Account under Secondary Income or Transfer Payments.
• Export and Import of software services: Trade in services (invisible trade) is a standard component of the Current Account.