08A. International Economics

Is loan given by Indian to foreigner falls under capital account of current account in BoP

capital account

answer whether in current account or capital account

1. Import export of merchandise or services

2. earnings of Indians to foreigners

3. Transfers

4. Investment

5. Loan and borrowing

6. External Assistance*******

1. current

2. current

3. current

4. capital

5. Capital

6. capital

If i go to foreign then whther it is current or capital and merchandise or service

We imported service

Currentaccount

1. Visibles

2. Invisibles

1. Merchandise export

2. Services + transfer + income (NFIFA)

What is hot money

FPI

Is suppose Current account is -50 and Capital account is +100 then total we have +50 billion, we write the reserves as how much

we write it as -50 but in reality reserves are increasing, this is the convention. - shows increase in reserves

FDI vs FPI/FII

1. diff

2. %

3. regulator

1. control of company and get profits vs just wait for the share price increases and sell it later

2. >10% an dless than 10%

3. ______ vs SEBI+RBI

Limits of FDI in various sectors

0. automatic route vs approval

1. Who will give approval

2. 100% is for

3. Pvt banks and public banks

4. News

0. can buy automatically , need permission

1. Foreign Investment promotion Board (initial, now abolished) , now diff ministries give approvals

2. Agri and animal husbandry, Aviation, Defence(automatic 74%), E-commerce, Insurance, Pharmaceuticals, Space sector(74%), Telecommunications

3. (74,48) and 20%

4. 26%

Lets see Exchange rates now

If inflation in India is very high then what happens to PPP exchange rate

exchnage rate increases, that is (1usd = 20rs to 1 usd = 30rs) that is purchasing power of Indian rupee goes down

Mixed exchange rate system other name

Dirty floating system

Revaluation, Devaluation vs Appreciation, Depreciation

1. Gvt decision vs market forces

Convertibility of Rupees

1. Current account

2. Capital account

1. Fully convertible

2. Some limits and restrictions

Effective Exchange rate (Nominal)

Rather than comparing India with Individual currency we compare it with a basket of trade weighted currencies

Real effective exchange rate (REER)

Removing the effect of inflation from all the currencies is called REER