Indicate the correct code of the following statements being correct or incorrect. The statements relate to the type of transactions recorded in the current/capital accounts of the Balance of Payments. Statement (I) : The capital account consists of long-term capital transactions only. Statement (II) : The current account includes all transactions which give rise to or use up national income. Correct Answer Statement (I) is incorrect while Statement (II) is correct. Statement (I): The capital account consists of long-term capital transactions only. Explanation: The capital account of BOP records all those transactions, between the residents of a country and the rest of the world, which cause a change in the assets or liabilities of the residents of the country or its government. It is related to claims and liabilities of financial nature. The capital account records all transactions made between entities in one country with entities in the rest of the world. These transactions consist of Investments to and from abroad, Change in Foreign Exchange Reserves, Borrowings and lendings to and from abroad The capital account measures the changes in national ownership of assets. Thus, the statement I is incorrect. Statement (II): The current account includes all transactions which give rise to or use up national income. Explanation: The current account measures the country's net income. The current account on the balance of payments measures the inflow and outflow of goods, services, investment incomes, and transfer payments. The current account measures the nation's earnings and spendings abroad and it consists of the balance of trade, net primary income or factor income (earnings on foreign investments minus payments made to foreign investors), and net unilateral transfers, that have taken place over a given period of time. The current account is used in the national income identity for GNP. The current account may be positive (a surplus) or negative (a deficit); positive means the country is a net exporter and negative means it is a net importer of goods and services. ​Thus, statement II is correct. ∴ Option 4 is the correct answer.