Q29 of 50 Page 1

Indian investors lend abroad. Answer the following questions

(a) In which sub-account and on which side of the Balance of Payments Account such lending is recorded? Give reasons.


b) Explain the impact of lending on the market exchange rate.


A)


● If an Indian investor lends abroad, it will be recorded in the capital account of the balance of payment.


● This is because it creates new foreign exchange assets.


● It is recorded on the debit side because it leads to the outflow of foreign exchange.


b)


Lending abroad increases the demand for foreign exchange.


● The supply of foreign exchange remains unchanged.


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(ii)Net Current transaction to abroad 20


(iii)Net factor income to abroad(-) 10


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(viii)Depreciation100


(ix)Net imports30


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(xi)National debt interest50

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