Question 1

What does a 'current account deficit' indicate about a country's international economic position?

Accepted Answer

A current account deficit means a country is spending more on imports (goods, services, and income payments) than it earns from exports and income receipts. It indicates the country is borrowing from abroad or drawing down foreign reserves to finance the deficit.

Question 2

Which of the following best describes the 'Current Account' component of India's Balance of Payments?

Accepted Answer

The Current Account records all transactions related to trade in goods, services, income, and transfers between India and the rest of the world. It includes exports and imports of merchandise, services, investment income, and unilateral transfers.

Question 3

Which of the following best defines 'Balance of Payments' in international trade?

Accepted Answer

Balance of Payments (BoP) is a systematic record of all economic transactions between a country and the rest of the world during a specific period. It includes the current account (trade in goods and services) and the capital account (investment flows).

Question 4

A country has exports worth ₹500 crore and imports worth ₹600 crore. What is the status of its trade balance?

Accepted Answer

Trade Balance = Exports − Imports = ₹500 crore − ₹600 crore = −₹100 crore. A negative trade balance indicates a trade deficit, meaning the country imports more than it exports.

Question 5

Which of the following is NOT included in a country's merchandise trade (goods trade)?

Accepted Answer

Merchandise trade refers to the export and import of tangible goods (raw materials, manufactured products, agricultural products, etc.). Services such as IT services, tourism, shipping, and financial services are recorded separately in the services account, not in merchandise trade.

Question 6

Which account in the Balance of Payments records transactions related to goods, services, income, and transfers?

Accepted Answer

The Current Account is the primary component of BoP that records all transactions in goods (merchandise trade), services (tourism, IT services), primary income (wages, investment returns), and secondary income (remittances, gifts). The Capital Account records investment flows and asset transfers.

Question 7

When India's Balance of Payments shows an overall surplus, it typically means:

Accepted Answer

An overall BoP surplus occurs when the sum of Current Account and Financial Account (excluding reserve asset changes) is positive, meaning more foreign currency is flowing in than flowing out. This leads to an increase in foreign exchange reserves.

Question 8

India's merchandise trade deficit occurs when:

Accepted Answer

A trade deficit (or negative trade balance) happens when the value of imports exceeds the value of exports. India has historically run merchandise trade deficits, particularly in oil and raw materials.

Question 9

Which of the following best describes the 'Current Account' component of India's Balance of Payments (BoP)?

Accepted Answer

The Current Account records all transactions related to trade in goods, services, primary income (like investment returns), and secondary income (like remittances and grants). It excludes capital and financial transactions.

Question 10

Which account in the Balance of Payments records Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI)?

Accepted Answer

The Financial Account (formerly called Capital Account in older BoP terminology) records all investment flows, including FDI, FPI, loans, and other financial assets. This is distinct from the Current Account.

Question 11

India's services exports, which contribute significantly to reducing its merchandise trade deficit, primarily include which of the following?

Accepted Answer

India's services sector exports include IT services, business process outsourcing (BPO), software, tourism, shipping, and financial services. These are major foreign exchange earners and help offset the merchandise trade deficit.

Question 12

India's merchandise trade deficit in FY 2023-24 was primarily driven by a significant gap between imports and exports. Which of the following correctly identifies the major component that contributed most to this deficit?

Accepted Answer

India's trade deficit in FY 2023-24 was substantially driven by crude oil and petroleum imports, which together accounted for approximately 25-28% of total imports. Despite India's growing exports in services and manufactured goods, the high volume and price volatility of crude oil imports created a persistent merchandise trade deficit of approximately USD 37-40 billion in FY 2023-24.

Question 13

Under the Balance of Payments accounting framework, a foreign investor's repatriation of profits earned from a subsidiary in India is recorded in which account?

Accepted Answer

Profit repatriation is recorded as primary income outflow in the Current Account, specifically under 'income on direct investment' or 'investment income'.

Question 14

India's services exports, which contributed approximately 4.2% to GDP in FY 2023-24, are dominated by which sector?

Accepted Answer

Information Technology (IT) services account for approximately 55-60% of India's total services exports, making it the dominant services export sector.

Question 15

Which of the following correctly defines the 'Current Account' component of India's Balance of Payments as per IMF standards?

Accepted Answer

The Current Account records all transactions related to goods, services, primary income, and secondary income between residents and non-residents. It excludes capital and financial transactions.

Question 16

India's merchandise trade deficit in FY 2023-24 was primarily driven by which of the following import categories?

Accepted Answer

India's trade deficit is consistently driven by petroleum products, which account for approximately 25-30% of total imports, followed by precious metals and electronic components.

Question 17

Which of the following best explains why India's Current Account deficit narrowed significantly in FY 2022-23 despite a merchandise trade deficit?

Accepted Answer

The Current Account deficit narrowed due to a substantial increase in remittances from overseas Indians, which exceeded $100 billion and offset the merchandise trade deficit.

SSC MTS Trade & Balance of Payments

Trade & Balance of Payments— Rules & Concept

Key Points to Remember

Exam-Specific Tips

Trade & Balance of Payments — Practice Questions

60-Second Revision — Trade & Balance of Payments