The foreign exchange market is where currencies are traded. Currencies are important because they allow us to purchase goods and services locally and across borders. International currencies need to be exchanged to conduct foreign trade and business. If you are living in the United States and want to buy cheese from France, then either you or the company from which you buy the cheese has to pay the French for the cheese in euros (EUR). This means that the U.S. importer would have to exchange the equivalent value of U.S. dollars (USD) for euros. The same goes for traveling. A French tourist in Egypt can’t pay in euros to see the pyramids because it’s not the locally accepted currency. The tourist has to exchange the euros for the local currency, in this case the Egyptian pound, at the current exchange rate. 

A French tourist is travelling to United states of America. On which side of the Indian BoP account will the transaction be recorded?

None of the above

The correct answer is option 4: None of the above

The Balance of Payments (BoP) account records transactions between a country and the rest of the world. The movement of a French tourist to the United States is an internal transaction between two foreign countries. This transaction does not involve India in any way, so it will not be reflected in India's BoP account. Only transactions involving India and other countries are recorded in India's BoP.