question_answer

Direction: Q 6 to 10

Read the following case study and answer questions.

The growing strength of India's BoP was observed in the post reform period, since the crisis of 1991 continued in 2005-2006. This growing strength was inspite of a widening current account deficit to the tune of US dollar 9.2 million that is equivalent to 1.1 per cent of GDP in 2005-2006. Rising foreign investment, together with a sharp revival of inflows of non-resident deposits, maintained a strong balance in the capital account vis-à-vis high level of reserves. Given such robust, external position of RBI had deemed it opportune to revisit the issue of full capital account convertibility.

In this scenario, Indian companies hand holdings with international agencies (taxing loans and equity partnership) plans to make huge investments in retails and infrastructure.

Also, many companies are boosting up their foreign country operations. They are less perturbed about the rising inflation rate or the other tight money measures adopted by the government. This could be due to favourable consolidation exposure and the opportunity in covering their risk in currency future market.

Current account of BoP records which of the following transactions?

A) Transactions which are done for profit motive

B) Transactions which have no impact on the capital reserve of the country

C) Transactions which bring BoP in the state of equilibrium

D) Both (a) and (b)