question_answer

                                  Giving reasons explain whether the given statements are true or false.           

(i) Current account of balance of payments account records only export and import of goods and services.

(ii) Foreign investments are recorded in the capital account of balance of payments.

(iii) Improvement in exchange rate of the country's currency always beneficial for Balance of Payment (BoP).

(iv) Rise in foreign exchange rate cause a rise in its supply.

Answer:

(i) False, as current account of balance of payments account also records unilateral transfers.     (ii) True, as all kinds of foreign investments (foreign direct investments and portfolio investment included in the capital account of balance of payments.                                      (iii) False, as improvement in the exchange rate of a country's currency implies that less rupees are to be  paid for a dollar than before. It points to the relative strength of the Indian rupee in the international market. However, for a developing country like India, it is not always desired. It would mean that US, now can buy less Indian goods for a dollar than before, which might cut US demand for the Indian goods i.e. it leads to fall in exports from India.                                                       (iv) True, a rise in foreign exchange rate causes a rise in its supply because, there is a direct relation or positive relation between foreign exchange rate and supply of foreign exchange. As with the rise in  exchange rate, foreign currency can buy more units of domestic good with the same amount, therefor it leads to increase in supply of foreign exchange.