Bop on capital account, Macroeconomics

Assignment Help:

BOP on Capital Account:

BOP on Capital Account  shows only export and import of capital and  the difference between  the  two represents a country's capital account balance. Capital account  is  important  because movements  in capital  decides  the sustainability of current account deficit as well as exchange rate  trends.  In India, capital inflows or outflows mainly take place  in the  form of FDI and portfolio investment, commercial loans  and banking capital  (NRI deposits including). FDI inflows or outflows are with the intention of buying physical assets to start a business in the home country or abroad on  long term basis. Portfolio investment with a view  to buying financial assets in securities markets and NRI depasits/withdrawal  show  short-term capital movement. External  commercial borrowings  are undertaken both by  government and private sectors from bilateral, multilateral and private sources either on short or  long term  basis. Banking capital records  changes  in foreign assets and liabilities of the Indian banks authorised to deal in foreign exchange.

Capitalinflows increase the banks' liabilities (credit item) while outflows are their assets and  enter debit  items in their accounts. Further two minor  items -rupee debt service  to repay foreign debt  in rupees and other capital accruing on account of delayed receipts of exports - are part of capital account. After adjusting for errors and omissions we get an overall balance, which is nothingbut sum of current and capital account transactions. Under IMF transactions,loans  from  that organisation are a credit  item while repayments are a debitentry in our books.

Drawing down from and accretion to foreign exchangereserves act balancing entry to meet deficit or show surplus respectively elsewhere in BOP. Putting all the entries  together, it is to be remembered that the "Balance of Payments always Balances". A related question is about BOP Equilibrium which requires that any deficit on the current account be matched by an equal surplus on the capital account and vice-versa.  

 


Related Discussions:- Bop on capital account

Difference between Quantitative Easing and Monetary Policy, Why is quantita...

Why is quantitative easing used during liquidity trap when it lowers interest rates too?

Economic performance, This 24 year 1 quarter period should offer sufficient...

This 24 year 1 quarter period should offer sufficient insight into the short term and long term correlation between the variables. Figure - A graph showing the trend of

Total public debt outstanding, What was the total public debt outstanding o...

What was the total public debt outstanding on the same day in 2000? What was it in 2008?

Calculating a country''s balance of payments, Which of the following is con...

Which of the following is considered when calculating a country's balance of payments? Military expenditures state unemployment domestic inflation rates foreign inflation rates.

Loretta liver more labs purchased r&d equipment, Loretta liver more labs pu...

Loretta liver more labs purchased R&D equipment costing $200000.00 The interest rate is 5%,salvage value is 20000.00 and the expected life is 10 years. Compute the PW of the deprec

Dumping and anti-dumping regulation, Based on the e-Activity, describe the ...

Based on the e-Activity, describe the dumping incident and how anti-dumping regulations could have been modified to prevent the incident you described.

Show the example on multiplier effect, Q. Show the example on multiplier ef...

Q. Show the example on multiplier effect? Emma makes a deposit:         Emma has 1,000 in her mattress and decides to deposit it in K-bank. Deposit won't affect the money

What do you mean by patulin, Q. What do you mean by Patulin? It is a to...

Q. What do you mean by Patulin? It is a toxic and antibiotic metabolite produced by several species of Penicillin, Aspergillus and Paeciliomyces but the most important in the c

Find the compensating variation , Joe has preferences over pizza (p) and be...

Joe has preferences over pizza (p) and beer (b) given by U = pb. The marginal utilities are MU p = b and MU b = p, and Joe's income is I = 60. 1. Find Joe's optimal consumptio

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd