The balance of payments shows a current account deficit of Rs. 14,24,400. The current account recorded a negative goods balance of Rs. 14,30,900 which exceeded a positive services balance of Rs. 3,000 and unilateral transfers balance of Rs. 3,500. The capital account recorded a deficit of Rs. 6,00,000 due to greater outward foreign direct investment compared to inward investment. However, there was a positive portfolio investment balance of Rs. 2,90,000 as foreign investment in Indian securities exceeded Indian investment abroad.
The balance of payments shows a current account deficit of Rs. 14,24,400. The current account recorded a negative goods balance of Rs. 14,30,900 which exceeded a positive services balance of Rs. 3,000 and unilateral transfers balance of Rs. 3,500. The capital account recorded a deficit of Rs. 6,00,000 due to greater outward foreign direct investment compared to inward investment. However, there was a positive portfolio investment balance of Rs. 2,90,000 as foreign investment in Indian securities exceeded Indian investment abroad.
The balance of payments shows a current account deficit of Rs. 14,24,400. The current account recorded a negative goods balance of Rs. 14,30,900 which exceeded a positive services balance of Rs. 3,000 and unilateral transfers balance of Rs. 3,500. The capital account recorded a deficit of Rs. 6,00,000 due to greater outward foreign direct investment compared to inward investment. However, there was a positive portfolio investment balance of Rs. 2,90,000 as foreign investment in Indian securities exceeded Indian investment abroad.
The balance of payments shows a current account deficit of Rs. 14,24,400. The current account recorded a negative goods balance of Rs. 14,30,900 which exceeded a positive services balance of Rs. 3,000 and unilateral transfers balance of Rs. 3,500. The capital account recorded a deficit of Rs. 6,00,000 due to greater outward foreign direct investment compared to inward investment. However, there was a positive portfolio investment balance of Rs. 2,90,000 as foreign investment in Indian securities exceeded Indian investment abroad.
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International Finance- Alaknanda Lonare
Unit – 2: Balance of Payment
Q.1. You are required to find out the overall balance, showing clearly all the sub balances from the following data:
a. UC Corporation of the USA invests in India Rs.3,00,000 to modernize its Indian
Subsidiary. b. A tourist from Egypt buys souvenirs worth Rs.3,000 to carry with him. He also pays hotel and travel bills of Rs. 5,000 to Delhi Tourist Agency. c. The Indian Subsidiary of UC Corporation remits, as usual, Rs.5,000 as Dividends to its parent company in USA. d. This Indian subsidiary of UC Corporation sells a part of its production in other Asian Countries for Rs. 1,00,000. e. The Indian Subsidiary borrows a sum of Rs. 2,00,000 (to be paid back in a year’s time) from German money market to resolve its urgent liquidity problem. f. An Indian company buys a machine for Rs. 1,00,000 from Japan and 60% payment is made immediately; the remaining amount is to be paid after 3 years. g. An Indian subsidiary of French Company borrows Rs.50,000 from the Indian public to invest in its modernization programme.
Sol:
Balance of Payments Particulars Amount Amount A. Current Account: i. Goods Account Export (+) 1,03,000 (1,00,000 Imports (-) ) Total of Goods Account 3,000
ii. Services Account:
Receipts as Interest and Dividend, tourism receipts for travel and financial charges (+) 5,000 Payment as interest and Dividend, tourism payments for travel and financial charges (-) (5,000) Total of services Account 0
iii. Unilateral Transfers
Gifts, Donations, Subsidies received from foreigners (+) Gifts, Donations, Subsidies made to foreigners (-) Total of unilateral transfers nil International Finance- Alaknanda Lonare
Current Account Balance (A) 3,000
B. Capital Account i. Foreign Direct Investment Direct Investment by foreigners (+) 3,00,000 Direct Investment abroad (-) - Total Foreign Direct Investment 3,00,000
ii. Portfolio Investment
Foreigners investment in securities in the country (+) 40,000 Investment in securities abroad (-) - Total Portfolio Investment 40,000
iii. Private Short-term capital flows
Foreigners claim on the country (+) 2,00,000 Short term Claims on Foreigners (-) - Total Private Short-term capital flows 2,00,000
Capital Account Balance (B) 5,40,000
C. Official Reserves Account
Decrease or increase in foreign exchange reserves -
D. Errors and Omissions -
BOP (A+B+C+D) 5,43,000
Q.2. Prepare a BOP statement for France from the following data:
a. France exports goods worth FFrs 5000
b. France import goods worth FFrs 4000 c. Expenditure of foreign tourist in France FFrs 2500 d. France makes interest and dividend payments to foreigners FFrs 2000 e. A French working in USA sends a cheque to his wife in Paris worth FFrs 500 f. A Bangladesh immigrant working in France remits money to his account in Dacca FFrs 1000 g. France telecom invests in India FFrs 4500 h. IBM invests in France FFrs 2000 i. A French resident buys a German Treasury bond FFrs 300 j. A Swiss resident buys a French Treasury bond FFrs 5000 k. A short term loan advanced by BNP to a British resident FFrs 4000 l. France borrows FFrs 3800 for short term. International Finance- Alaknanda Lonare
Sol:
Balance of Payments Amoun Amoun Particulars t t A. Current Account: i. Goods Account Export (+) 5,000 Imports (-) -4,000 Total of Goods Account 1,000
ii. Services Account:
Receipts as Interest and Dividend, tourism receipts for travel and 2,500 financial charges (+) Payment as interest and Dividend, tourism payments for travel and -2,000 financial charges (-) Total of services Account 500
iii. Unilateral Transfers
Gifts, Donations, Subsidies received from foreigners (+) 500 Gifts, Donations, Subsidies made to foreigners (-) -1,000 Total of unilateral transfers -500
Current Account Balance (A) 1,000
B. Capital Account i. Foreign Direct Investment Direct Investment by foreigners (+) 2,000 Direct Investment abroad (-) -4,500 Total Foreign Direct Investment -2,500
ii. Portfolio Investment
Foreigners investment in securities in the country (+) 5,000 Investment in securities abroad (-) -300 Total Portfolio Investment 4,700
iii. Private Short-term capital flows
Foreigners claim on the country (+) 3800 Short term Claims on Foreigners (-) -4,000 Total Private Short-term capital flows -200
Capital Account Balance (B) 2,000
International Finance- Alaknanda Lonare
C. Official Reserves Account
Decrease or increase in foreign exchange reserves -
D. Errors and Omissions -
BOP 3,000
Q.3. The following data are given:
a. An exporter sells watches to Russia for Rs. 5,00,000. The exporter accepts Rs.50,000 in cash and remaining as a one-year bill of exchange. b. Mohan, an Indian, goes to Sri Lanka on vacation with Rs.2,000. He spent Rs.1,000 on services received and bought souvenirs for Rs. 900 to bring with him. c. An Indian company import cloths worth Rs.5000 from Nepal. d. Karim from Bangladesh immigrates to India with Rs. 1,000. e. Karim finds a job and sends Rs.1,500 to his family in Bangladesh. f. ABC company of India decides to invest Rs. 6,00,000 in Mauritius to establish a business unit. Half of this investment is made in cash; remaining half is arranged by selling bonds in France. g. Profit made by Mauritius subsidiary of the ABC Company is Rs.20,000, of which 25% is remitted to the parent company in India. h. The Government of Sri Lanka issues bonds for Rs. 50,000 with an interest rate of 5%. Indian buys 20% of these bonds. i. An exporter, Madan, sells spare parts worth Rs.25,000 to Colombia and receives payment on delivery. j. An US exporter sells to India a process equipment for Rs.15,00,000. k. The Government of Sri Lanka paid interest of 5% on its bonds. l. Indian importer paid Rs.2,500 to an English Shipping company as charges. m. Karim sold some of his property in Bangladesh for Rs.5,000. His family members paid Rs. 1,000 to Air India for travel and remaining amount, they brought in cash.
Sol:
Balance of Payments Particulars Amount Amount A. Current Account: i. Goods Account Export (+) 75,000 Imports (-) -15,05,900 Total Goods Account -14,30,900 International Finance- Alaknanda Lonare
ii. Services Account:
Receipts as Interest and Dividend, tourism receipts for 6,500 travel and financial charges (+) Payment as interest and Dividend, tourism payments for -3,500 travel and financial charges (-) Total of services Account 3,000
iii. Unilateral Transfers
Gifts, Donations, Subsidies received from foreigners (+) 5,000 Gifts, Donations, Subsidies made to foreigners (-) -1,500 Total of unilateral transfers 3,500
Current Account Balance (A) -14,24,400
B. Capital Account i. Foreign Direct Investment Direct Investment by foreigners (+) Direct Investment abroad (-) -6,00,000 Total Foreign Direct Investment -6,00,000
ii. Portfolio Investment
Foreigners investment in securities in the country (+) 3,00,000 Investment in securities abroad (-) -10,000 Total Portfolio Investment 2,90,000
iii. Private Short-term capital flows
Foreigners claim on the country (+) Short term Claims on Foreigners (-) -4,50,000 Total Private Short-term capital flows -4,50,000
Capital Account Balance (B) -7,60,000
C. Official Reserves Account
Decrease or increase in foreign exchange reserves -
