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Which one of the following is NOT a component of the Balance of Payments?

1. Official Reserves Account
2. Current Account
3. Deficit Account
4. Capital Account

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Correct option is C

The Balance of Payments (BoP) is a comprehensive record of a country's economic transactions with the rest of the world. It consists of key accounts that include:

1. Official Reserves Account: Maintains foreign exchange reserves and acts as a balancing item in BoP.
2. Current Account: Includes trade in goods and services, income from investments, and current transfers.
3. Capital Account: Captures transfers of capital, investments, and financial transactions.

Deficit Account is NOT a component of BoP. While "deficit" is a condition that may arise in BoP (when debits exceed credits), it is not an account or structural component.

Information Booster:

1. Official Reserves Account:
   The reserves account is managed by the central bank and reflects changes in foreign exchange reserves, gold reserves, and Special Drawing Rights (SDRs). It helps balance payments when there is a surplus or deficit in other accounts.

2. Current Account:
   The current account records all transactions related to the export and import of goods and services (trade balance), income flows (e.g., dividends, interest), and one-way transfers (e.g., remittances).

3. Capital Account:
   This account deals with international capital transfers. It records foreign investments in domestic assets and domestic investments abroad, such as equity, bonds, and loans.

Additional Knowledge:

"Deficit" is a term that signifies an imbalance between a country's imports and exports or inflows and outflows. It may be a result of the operations recorded in the Current and Capital Accounts but does not exist as a formal category in BoP.

Components of BoP:
Apart from Current and Capital Accounts, another key section of BoP is the Financial Account, which includes portfolio investments, direct investments, and other financial flows.