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External Sector (BOP) - Economics, UPSC IAS Exam Preparation Video Lecture | Indian Economy (Prelims) by Shahid Ali
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FAQs on External Sector (BOP) - Economics, UPSC IAS Exam Preparation Video Lecture - Indian Economy (Prelims) by Shahid Ali
| 1. What is the meaning of the term "External Sector (BOP)" in economics? |  |
Ans. The term "External Sector (BOP)" refers to the part of a country's economy that deals with its international transactions. It includes trade in goods and services, capital flows, and financial transfers between a country and the rest of the world. The Balance of Payments (BOP) is a record of all these transactions.
| 2. What is the significance of the External Sector (BOP) in a country's economy? | |
Ans. The External Sector (BOP) plays a crucial role in a country's economy. It reflects the economic relationships between a country and the rest of the world and provides important information about the country's international competitiveness, economic stability, and sustainability of its growth. It helps policymakers in formulating appropriate economic policies and assessing the impact of global economic events on the country.
| 3. What are the components of the External Sector (BOP)? | |
Ans. The External Sector (BOP) consists of three main components: current account, capital account, and financial account. The current account records the trade in goods and services, income flows (such as wages, interest, and dividends), and unilateral transfers (such as foreign aid). The capital account records capital transfers, such as debt forgiveness and migrants' transfers. The financial account records financial investments and liabilities, such as foreign direct investment and portfolio investments.
| 4. How is the External Sector (BOP) balance determined? | |
Ans. The External Sector (BOP) balance is determined by the net inflow or outflow of foreign exchange resulting from the country's international transactions. If the value of exports of goods and services, income receipts, and capital inflows exceeds the value of imports, income payments, and capital outflows, the BOP will have a surplus. Conversely, if the value of imports, income payments, and capital outflows exceeds the value of exports, income receipts, and capital inflows, the BOP will have a deficit.
| 5. What are the implications of a surplus or deficit in the External Sector (BOP)? | |
Ans. A surplus in the External Sector (BOP) indicates that a country is exporting more than it is importing, earning foreign exchange and accumulating foreign assets. This can lead to a strengthening of the country's currency, increased foreign reserves, and improved economic stability. On the other hand, a deficit in the BOP indicates that a country is importing more than it is exporting, resulting in a drain of foreign exchange and accumulation of foreign liabilities. This can lead to a depreciation of the country's currency, depletion of foreign reserves, and potential economic instability.
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Nov 21, 2024 Last updated |
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