Question

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) Investments from abroad.
(b) Transfer of funds to relatives abroad.

Answer 1

(a). Investments from abroad are recorded on the CREDIT (positive) side of the CAPITAL account as they bring in foreign exchange and adds to the capital stock of the country. These include investments by rest of the world in shares of Indian companies, real estate in India, etc.

(b). Transfer of funds to relatives abroad is recorded on the the DEBIT side of the CURRENT account as it is a one way transaction. It includes gifts, donations, personal remittances etc.