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Question
Reliance Industries of India invests in a company located in Mauritius. This transaction is entered in India's balance of payments account under ______.
Options
credit side of current account
debit side of current account
credit side of capital account
debit side of capital account
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Solution
Reliance Industries of India invests in a company located in Mauritius. This transaction is entered in India's balance of payments account under debit side of capital account.
Explanation:
This transaction represents a Foreign Direct Investment (FDI) that alters India's foreign financial assets, placing it strictly within the capital account. Furthermore, because Reliance Industries is sending money out of India to fund the purchase, it results in an outflow of foreign exchange, which requires a debit entry in Balance of Payments accounting.
