Which of the following items can be included in Capital Account in BOP ?

(A) An Indian buys a UK Car company

(B) A Swedish citizen buys shares of Reliance company

(C) Export of Rajasthan's blue pottery to an Italian restaurant owner

(D) Apple I-phones gifted by an Indian company to its employees

Choose the correct answer from the options given below:

  1. (B) and (C) Only
  2. (C) and (D) Only
  3. (A) and (D) Only
  4. (A) and (B) Only

Answer (Detailed Solution Below)

Option 4 : (A) and (B) Only

Detailed Solution

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Given the question on which items can be included in the Capital Account in the Balance of Payments (BOP), let's break down each statement accordingly:

The correct option is '(A) and (B) Only'.

Key Points

  • An Indian buys a UK Car company.
    • This is correct.
    • When an Indian buys a UK Car company, it involves a transfer of ownership and investment flows from India to the UK. This transaction is recorded in the Capital Account of the Balance of Payments as it represents a cross-border investment.
    • Such transactions typically affect the financial assets and liabilities between residents and non-residents, fitting the criteria for inclusion in the Capital Account.
  • A Swedish citizen buys shares of Reliance company.
    • This is correct.
    • The purchase of shares in an Indian company by a Swedish citizen is considered a foreign investment in India. This transaction is recorded under the Capital Account of the BOP, reflecting the change in ownership of assets.
    • Investments in shares, bonds, or other financial instruments by non-residents in a country are key components of the Capital Account.
  • Export of Rajasthan's blue pottery to an Italian restaurant owner.
    • This statement is incorrect.
    • The export of goods, such as Rajasthan's blue pottery, is recorded under the Current Account of the BOP, not the Capital Account.
    • The Current Account reflects transactions in goods and services, including exports and imports, rather than financial transactions that alter a nation's assets or liabilities.
  • Apple I-phones gifted by an Indian company to its employees.
    • This statement is incorrect.
    • Gifting items, even if they are of significant value like Apple iPhones, by a company to its employees does not constitute a cross-border financial transaction that would be recorded in the Capital Account.
    • Such transactions do not involve the transfer of assets or liabilities between residents and non-residents and are not part of BOP accounting.

Hence, statements (A) and (B) correctly describe transactions that would be included in the Capital Account of the Balance of Payments, making option 4 the correct answer.

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