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Choose the incorrect statement from given below.
  • a)
    Repayment of loan taken from IMF will be recorded on debit side.
  • b)
    Surplus in BoP refers to a state where debit side exceeds credit side.
  • c)
    Increase in investment from rest of the world decreases the exchange rate.
  • d)
    Devaluation of current items improves trade balance of domestic country.
Correct answer is option 'B'. Can you explain this answer?
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Choose the incorrect statement from given below.a)Repayment of loan ta...
Surplus is the situation of excess of receipts over expenditures. In BoP, it happens when the balance of credit side exceeds the balance of debit side.
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Choose the incorrect statement from given below.a)Repayment of loan ta...
The incorrect statement is option B: Surplus in BoP refers to a state where debit side exceeds credit side.

Explanation:

Balance of Payments (BoP):
The balance of payments (BoP) is a record of all economic transactions between the residents of a country and the rest of the world over a specified period. It consists of two main accounts - the current account and the capital account.

Current Account:
The current account of the balance of payments includes transactions related to the trade of goods and services, income flows, and unilateral transfers. It consists of the following components:

1. Trade Balance: The trade balance represents the difference between the value of a country's exports and imports of goods. If the value of exports exceeds imports, it is termed as a trade surplus, and if imports exceed exports, it is termed as a trade deficit.

2. Services Balance: The services balance includes the value of exports and imports of services, such as transportation, tourism, and financial services.

3. Income Balance: The income balance includes income flows, such as wages, interest, and dividends, between residents and non-residents.

4. Unilateral Transfers: Unilateral transfers are gifts, grants, and remittances sent by individuals or organizations from one country to another without receiving anything in return.

Capital Account:
The capital account of the balance of payments includes transactions related to capital transfers and the acquisition or disposal of non-produced, non-financial assets.

Now, let's analyze the incorrect statement:

Statement B: Surplus in BoP refers to a state where the debit side exceeds the credit side.

This statement is incorrect because a surplus in the BoP refers to a state where the credit side exceeds the debit side. In other words, when a country's receipts from exports, income flows, and unilateral transfers are higher than its payments for imports and outward flows, it results in a surplus in the BoP.

A surplus in the BoP indicates that the country is receiving more funds from the rest of the world than it is spending or transferring to the rest of the world. It often implies a positive net inflow of foreign currency, which can have various implications for the domestic economy, such as an increase in foreign exchange reserves or a strengthening of the domestic currency.

Therefore, the correct statement would be: Surplus in BoP refers to a state where the credit side exceeds the debit side.
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Choose the incorrect statement from given below.a)Repayment of loan taken from IMF will be recorded on debit side.b)Surplus in BoP refers to a state where debit side exceeds credit side.c)Increase in investment from rest of the world decreases the exchange rate.d)Devaluation of current items improves trade balance of domestic country.Correct answer is option 'B'. Can you explain this answer?
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