Question
Export and import of machines recorded in capital account of BOP account. True or false? Give reasons.
Solution
True/False. The statement is false because export and import of all goods including machines are recorded in current account.
Note: There is third category (besides current account and capital account) called official reserve account which records transactions of central bank in BOP statement. These transactions are called accommodating or ‘beloiv the line’ transactions. It relates to running down of its reserves of foreign exchange by selling foreign currency in foreign exchange market in case of deficit. The decrease (or increase) in official reserves is called the overall balance of payments deficit (or surplus).
