1.

Are the following entered (i) on the credit side or the debit side and (ii) in the current account or capital account in the Balance of Payments account? You must give reason for your answer. (a) Investment from abroad (b) Transfer of funds to relative abroad.

Answer» (i) Investments from abroad are recoreded on the credit side because these brings in foreign exchange. The transaction is recorded in capital account because it increases foreign exchange liability.
(ii) Transfer of funds to relatives abroad is recorded on the debit side because it leads to outflow of foreign exchange
It is recorded in the current account because this does not create any foreign exchange asset


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