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Indian investors lend abroad. Answer the following questions:
  1. In which sub-account and on which side of Balance of Payments Account such lending is recorded? Give reasons.
  2. Explain the impact of this lending on market exchange rate.
CBSE OUTSIDE DELHI - SET 2 2016
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  1. Indian lending abroad is recorded in the capital account of BOP account because it leads to creation of foreign exchange assets. It is recorded on the debit side because it leads to outflow of foreign exchange.
  2. Lending abroad increases demand for foreign exchange. Supply of foreign exchange remains unchanged, the exchange rate may rise.
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