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

Give detail introduction of central banks, Give detail introduction of Cen...

Give detail introduction of Central banks A central bank is a public authority that is responsible for monetary policy for a country or a group of countries. Two important cen

Pr0ject 2, how long will be the solution

how long will be the solution

Macroeconomics , 1. Nations trade what they produce in excess of their own ...

1. Nations trade what they produce in excess of their own consumption to: A) generate jobs for the domestic economy. B) earn “good will” from the World Bank. C) prevent chronic sur

Income and substitution effects of a price change, Income and Substitution ...

Income and Substitution Effects of a Price Change Indifference curve analysis can be used to separate the income effect (IE) from substitution effect (SE). This is shown in Fig

What do you mean by yield curve, Q. What do you mean by yield curve? Yi...

Q. What do you mean by yield curve? Yield curve is a graph of interest rates of different maturity (recalculated to yearly rates) at a specific point in time. It's common for t

Calculating interest rates on a yearly basis, Calculating interest rates on...

Calculating interest rates on a yearly basis If the maturity is different from one year, the interest rate is usually recalculated to a corresponding one year rate. For example

Explain about nominal wage level, Q. Explain about Nominal wage level? ...

Q. Explain about Nominal wage level? In macroeconomics, we are usually not interested in the wage for a specific individual though in the average wage for all employed individu

Neoclassical view, Roles of government in controlling market forces under n...

Roles of government in controlling market forces under neoclassical view

Is household savings depend on gdp in the cross model, Q. Is Household savi...

Q. Is Household savings depend on GDP in the cross model? Household savings depends on Y since S H = Y - C - NT and C and NT both rely on Y. How it depends on Y can't be concl

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