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

Principles of macroeconomics, what is the company lidted in NASDAQ that is ...

what is the company lidted in NASDAQ that is included in the dow jones industrial average

Heckscher-ohlin theory, Suppose Nigeria has 20 million workers and 16 milli...

Suppose Nigeria has 20 million workers and 16 million units of capital, while Botswana has 5 million workers and 3.5 million units of capital. Which of the following statements is

Consumer surplus and producer surplus, Suppose the inverse demand curve for...

Suppose the inverse demand curve for a market is equal to p = 100 -- 0.3Q. The inverse market supply curve is p = 20 + 0.5Q. 1. Calculate the equilibrium price and quantity;

U.s. department of agriculture, Suppose that the U.S. Department of Agricul...

Suppose that the U.S. Department of Agriculture (USDA) administers the price floor for cheese, set at $0.17 per pound of cheese. (The price floor is officially set at $16.10 per hu

Keynesian, critically examine the keynesian theory of unemployment

critically examine the keynesian theory of unemployment

What is money and what is not money, Q. What is money and what is not money...

Q. What is money and what is not money? If you are trying to conclude if something is money, basically consider whether it would be accepted in most stores as payment. Then you

The micro-finance institutions in india, Have the micro-finance institution...

Have the micro-finance institutions failed in their objectives?

Calculate the npv for discount rates, Shambles, a large toy retailer, are l...

Shambles, a large toy retailer, are looking at bringing out a new range of soft toys. The range under consideration is "Mythical Beasts."  The "Mythical Beasts" range will cost £50

Result of an export subsidy, Which of the following is a result of an expor...

Which of the following is a result of an export subsidy? a. The imposing nation always benefits from an export subsidy. b. The imposing nation suffers a terms of trade loss from an

Index number, definition and charactoristics of index numbers.problems whil...

definition and charactoristics of index numbers.problems while constructing index numbers

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