"Purchase of a firm by Reliance Ltd. in America will be recorded on the debit side of the capital account of BOP."

Which of the following is true in regards to the above statement?

The statement is true

the correct answer is option 1: The statement is true

Purchase of a firm by Reliance Ltd. has resulted in an outflow of foreign exchange from India to USA. Thus, it will recorded on the debit side of the account. Had it been an opposite situation where a firm from USA had purchased a firm in India, this would have resulted in inflow of foreign exchange and would have been recorded in the credit side of the account.