Practicing Success

Target Exam

CUET

Subject

Economics

Chapter

Macro Economics: Open Economy Macro Economics

Question:

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?

Options:

It will be recorded on the credit side

It will be recorded on the debit side

It will either be recorded on the debit side or credit side

The transaction will not be recorded

Correct Answer:

It will be recorded on the debit side

Explanation:

Whether a transaction is recorded on the debit side or credit side is determined on the basis of flow of foreign exchange. If due to any transaction, there is inflow of foreign exchange the transaction will be recorded on the credit side whereas, when there is outflow of the foreign exchange it will be recorded on the debit side. Here, the government had PAID the money thus an outflow of foreign exchange, which means the transaction will be recorded on the debit side of the account.