Q.Distinguish between Balance of Trade and Balance of Payments.

Balanced BoP = total foreign receipts equal total foreign payments (no surplus, no deficit).

The balance of payments (BoP) is a systematic record of all economic transactions of a country with the rest of the world over a year. It is said to be balanced when the total receipts (credits) from other countries are exactly equal to the total payments (debits) to other countries. In this position there is neither a favourable (surplus) nor an unfavourable (deficit) balance. (In accounting terms the BoP always tallies, but 'balanced BoP' refers to the equality of autonomous receipts and payments.)

The balance of payments includes the current account, capital account and official settlement account — option (d).

In the Tamil Nadu HSC Class-12 Economics (International Economics) syllabus, the Balance of Payments (BoP) is the systematic record of all economic transactions between a country and the rest of the world. Its main components are:

• Current account — trade in goods and services, income and current transfers.
• Capital account — international capital flows, loans and investments.
• Official settlement (reserve) account — changes in official foreign-exchange reserves used to settle the balance.

Since all three are components of the BoP, the answer is "All of the above."

Balance of trade is the balance of visible trade — option (c).

Balance of trade (BOT) is the difference between the value of a country's visible exports and visible imports, i.e. trade in goods only. 'Visible' items are physical goods that can be seen crossing the border. It excludes invisible items (services, remittances, interest) and capital flows, which are covered under the broader balance of payments. Hence BOT = balance of visible trade.

The balance of payments has 2 accounts — option (a) — the current account and the capital account.

The balance of payments (BOP) is a systematic record of all economic transactions between a country and the rest of the world in a year. It is divided into two main accounts:

• Current account — visible trade (goods), invisible trade (services), and transfers/remittances.
• Capital account — inflows and outflows of capital such as loans, investments and foreign-exchange reserves.

Together these two accounts make up the balance of payments.

Foreign Direct Investment is not permitted in atomic energy, which is a prohibited strategic sector in India.

Foreign Direct Investment (FDI) is investment by a foreign entity into productive assets of a country, and it forms part of the capital account of the balance of payments. India follows a selective FDI policy: it welcomes FDI in most sectors (with defined caps and routes) but bars it in a few sensitive/strategic sectors.

Among the options, pharmaceuticals, banking and insurance are all sectors where FDI is allowed up to prescribed percentage limits. Atomic energy, being a strategic sector tied to national security, is on the prohibited list where FDI is not permitted.

Buying bonds or stock overseas is portfolio investment, not FDI, so option (a) is the correct 'not FDI' answer.

In the international-economics topic of the Tamil Nadu HSC Commerce syllabus, foreign investment (recorded in the capital account of the balance of payments) is of two kinds:

• Foreign Direct Investment (FDI): investment that gives a lasting interest and management control in a foreign enterprise — e.g., building a new plant, setting up a wholly owned firm, or acquiring an existing company abroad.
• Foreign Portfolio Investment (FPI): buying financial assets such as shares and bonds purely for returns, without acquiring control.

Checking the options: (b) a new auto plant, (c) a wholly owned firm, and (d) acquiring a steel mill all give management control, so all are FDI. Only (a), buying bonds or stock for financial return, is portfolio investment.

Favourable (surplus) balance of trade means exports are greater than imports, so option (b) is correct.

Balance of trade = value of exports − value of imports of goods (visible items).

• If exports > imports, the balance is favourable / surplus — money flows into the country.
• If exports < imports, the balance is unfavourable / deficit.
• If exports = imports, the trade is balanced.

So a favourable trade balance requires the value of exports to be more than the value of imports.

The correct option is (A) 2 — the current account and the capital account.

The balance of payments is a systematic record of all economic transactions between a country and the rest of the world in a year. It is maintained under two accounts: the current account, which records exports and imports of goods and services and unilateral transfers, and the capital account, which records inflows and outflows of capital such as loans, investment and reserves. Hence a balance of payments has two accounts.

Balance of payments includes both visible and invisible items.

The Balance of Payments (BoP) is a systematic record of all economic transactions between the residents of a country and the rest of the world during a year. It covers:

• Visible items — exports and imports of physical goods (merchandise trade).
• Invisible items — services (shipping, banking, insurance, tourism), income and unilateral transfers, plus capital-account flows.

The narrower balance of trade records only visible (merchandise) items, whereas the BoP records both.