Sheetal's friend Ranjana came from USA, and was showing her new clothes which she brought in America. Now, after few days Sheetal went to her nearby market looking for the exact apparel but couldn't find the same. So, she insisted one of the shopkeeper to get it from USA. Now, according to you, how will this transaction impact the BoP account?
Answer & explanation
Correct answer: option 1
The correct answer is option 1: There would be a deficit in BoP account
In this scenario, when Sheetal insists that a shopkeeper import the apparel from the USA, it involves an import of goods. In the Balance of Payments (BoP) account, imports are recorded as debits. Therefore, this transaction will increase the import side of the BoP account, leading to a deficit if imports exceed exports.