Government of India repaid the loan of 2.5 billion US dollars to International Monetary Fund lately, where will this be recorded on the BoP account?
Answer & explanation
Correct answer: option 2
The correct answer is option 2: It will be recorded on the debit side
The Balance of Payments (BoP) consists of two main accounts:
- Current Account – Records trade in goods and services, income, and transfers.
- Capital Account and Financial Account – Records capital transfers and financial transactions, including loans and repayments.
When the Government of India repays a loan of 2.5 billion US dollars to the International Monetary Fund (IMF), it results in an outflow of foreign exchange from India. Any outflow of money is recorded on the debit side of the BoP.
Thus, the loan repayment to the IMF will be recorded on the debit side of the capital account.