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Question
State on which side of capital account/current account will the following transactions be recorded and why:
(i) Interest on loan received from Nepal
(ii) Import of mobile phones from China
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Solution
(i) Interest on loan received from Nepal:
It is recorded as a positive item in the Capital Account of the BOP, as it results in an inflow of the foreign exchange into a country.
(ii) Import of mobile phones from China:
It is recorded as negative items in the Current Account of the BOP, as it results in an outflow of the foreign exchange from the country.
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