Q. Which of the following is/are component/s of the capital account of balance of payments?
1.External lending and borrowing
2.Foreign currency deposits of banks 3.Foreign Direct Investment
Choose the correct answer from below given codes:

[A] 1 only

[B] 1 and 2 only

[C] 2 and 3 only

[D] 1, 2 and 3

Answer: D

Explanation: Every government of the world maintains a capital account, which shows the capital kind of transactions of the economy with outside economies.

  • Every transaction in foreign currency (inflow or outflow) considered as capital is shown in this account—external lending and borrowing, foreign currency deposits of banks, external bonds issued by the Government of India, FDI, PIS and security market investment of the QFIs (Rupee is fully convertible in this case).
  • There is no deficit or surplus in this account like the current account.

Source: TMH Ramesh Singh