Records of a country's invisible trade are recorded in her_____________-

Analyze the question The question asks where a country records its invisible trade in the balance of payments.

Explain the concept

• Visible trade means the export and import of physical goods, such as cocoa, crude oil and cars. These go in the balance of trade (trade account).
• Invisible trade means the export and import of services and income flows, such as banking, insurance, shipping, tourism, transport, remittances, interest, dividends and transfers.
• In the balance of payments, the current account records both visible trade (goods) and invisible trade (services, income and current transfers).
• The capital account records capital transfers, such as debt forgiveness and the sale of non-produced assets.
• The financial account records investment flows, such as FDI, portfolio investment and loans.

Solution

1. Invisible trade covers services, income and transfers.
2. Services, income and transfers are all current transactions.
3. Current transactions are recorded in the current account.
4. The trade account (A) holds only visible items (goods), so it is not the answer.
5. The capital account (B) and the financial account (D) hold capital and investment flows, not services.

Answer: The current account, option C.

Exam tip Remember: Current account = Goods + Services + Income + Transfers. If a question mentions "invisibles", think "current account". If it mentions "visibles only", think "trade account" or "balance of trade".