UPSC Prelims 2013— Question 56

Concept and answer: Option B is correct. Foreign loans, foreign direct investment and portfolio investment are capital-account or financial-account transactions because they involve cross-border changes in financial assets and liabilities. Private remittances are generally treated under the current account as transfers rather than capital-account flows. Therefore statements 1, 2 and 4 form the correct combination. The question should be solved by testing each proposition separately before checking which answer combination contains only the valid statements. Option A: Incorrect. This alternative does not match the verified principle tested by the question. It either reverses the relationship, assigns the feature to the wrong institution, place, process or category, or includes an additional proposition that is not correct. The fact that an option may contain a term related to the subject does not make the entire option correct. Option B: Correct. This option is the combination or proposition that matches the verified principle described above. It does not introduce a contradiction or an unsupported qualification. Option C: Incorrect. This alternative does not match the verified principle tested by the question. It either reverses the relationship, assigns the feature to the wrong institution, place, process or category, or includes an additional proposition that is not correct. The fact that an option may contain a term related to the subject does not make the entire option correct. Option D: Incorrect. This alternative does not match the verified principle tested by the question. It either reverses the relationship, assigns the feature to the wrong institution, place, process or category, or includes an additional proposition that is not correct. The fact that an option may contain a term related to the subject does not make the entire option correct. Exam takeaway: the decisive point is the distinction stated in the core explanation, and Option B is the only choice fully consistent with it. For Prelims, avoid selecting an option merely because one part sounds familiar. Read the entire alternative, identify the controlling constitutional provision, historical fact, scientific mechanism, geographical location or economic definition, and then eliminate choices that overstate, omit or misclassify that point.