A foreign company is making investments in India with the aim of earning profit.

Which option from below suits best for the statement below?

Such transaction is ___of the country's BOP situation.

independent

The correct answer is Option 2: independent

If a foreign company is making investments in India with the aim of earning profit, then it would be considered as an autonomous transaction and these are always independent of the BOP status. These transactions are not conditioned by the BOP status.

"International economic transactions are called autonomous when transactions are made due to some reason other than to bridge the gap in the balance of payments, that is, when they are independent of the state of BoP. One reason could be to earn profit. These items are called ‘above the line’ items in the BoP. The balance of payments is said to be in surplus (deficit) if autonomous receipts are greater (less) than autonomous payments.

Accommodating transactions (termed ‘below the line’ items), on the other hand, are determined by the gap in the balance of payments, that is, whether there is a deficit or surplus in the balance of payments. In other words, they are determined by the net consequences of the autonomous transactions. Since the official reserve transactions are made to bridge the gap in the BoP, they are seen as the accommodating item in the BoP (all others being autonomous)."