Question

Interest payments on foreign debt count as income streams to foreign entities, for the country paying debt service these transactions cause which of the following? A) debit on the current account B) debit on financial account C) debit on capital account D) credit on current account.

Answer 1

Interest payments on foreign debts counts as income streams to foreign entities. For the country paying that service, these transactions cause a debit on the current account. All the factor incomes paid to and received from Foreign citizens are recorded in the current account of Balance of payments. Since, it is an income paid to foreign entities, it will be recorded as a debit on the current account.

Hence, Option A is correct i.e, a debit on the Current Account.