Which of the following should not be included in the balance of payments account?

Correct option is A

Bonus shares are shares issued by a company to its existing shareholders free of cost, typically as a capitalisation of reserves. This transaction is an internal corporate accounting adjustment and does not involve any actual cash flow or external financial transaction. The balance of payments (BoP) records all economic transactions between residents of a country and the rest of the world that involve monetary exchanges. Since issuing bonus shares does not entail any transfer of funds, it should not be included in the balance of payments accounts.

Information Booster:

The Balance of Payments (BoP) is a comprehensive record of all economic transactions between residents of a country and the rest of the world over a period of time. It has two main components:

• The Current Account, which records transactions in goods, services, income (dividends, interest), and current transfers.

• The Capital and Financial Account, which records transactions in assets, liabilities, and financial flows including loans, investments, and reserves.

Only transactions involving monetary value crossing borders or financial claims are included. Non-monetary transactions like issuing bonus shares to shareholders, which is an internal equity reallocation without fund movement, are excluded.

Additional Knowledge:

(b) Imports of automobile parts

• Incorrect: Imports involve payment to foreign suppliers, representing an outflow of foreign exchange, so it is recorded in the BoP.

(c) Dividend payment to home-country investors from a foreign subsidiary

• Incorrect: Dividends received from foreign investments are income receipts and part of the current account in BoP.

(d) Interest payment on loan to the IMF

• Incorrect: Interest payments on international loans are recorded as financial outflows in the BoP.