Balance of Payments and Foreign Investments

The inflow of capital in the form of external commercial borrowings (ECBs) is mainly aimed at:

• Financing short-term trade needs

• Supporting long-term capital investments

• Increasing government revenue

• Stabilizing the currency

Foreign Direct Investment (FDI) refers to:

• Investment in foreign stocks and bonds

• Investment in domestic real estate

• Investment by foreign entities in domestic companies

• Short-term capital movements

Which of the following statements about Foreign Direct Investment (FDI) is true?

• It generally involves speculative short-term investments.

• It usually entails a significant degree of control and management interest.

• It is primarily focused on acquiring foreign financial assets.

• It does not influence the economic policies of the host country.

NRI deposits in the balance of payments can be classified under which sub-category of the capital account?

• Portfolio investment

• Other investments

• Foreign direct investment (FDI)

• External commercial borrowings (ECBs)

How do external commercial borrowings (ECBs) typically impact a country's economy in the long run?

• They lead to an immediate increase in foreign exchange reserves.

• They have no significant long-term impact.

• They can result in increased foreign debt and repayment obligations.

• They primarily boost consumer spending.

In what way can NRI deposits benefit the home country?

• By increasing the domestic consumption rate.

• By enhancing the country's foreign exchange reserves.

• By leading to higher inflation rates.

• By reducing the need for external borrowings.

Which of the following is a potential risk associated with high levels of portfolio investment inflows into a country?

• Permanent increase in employment

• Long-term infrastructure development

• Volatility in the financial markets due to sudden withdrawal

• Increased government control over foreign companies

What is one of the primary advantages of receiving external assistance from international organizations?

• Decreased reliance on domestic resources

• Immediate increase in national GDP

• Access to funds with potentially favorable terms and conditions

• Guaranteed long-term economic stability

What does the capital account in the balance of payments record?

• Imports and exports of goods

• Financial transactions affecting national assets and liabilities

• Domestic production activities

• Government spending

Which of the following is a characteristic of portfolio investment?

• Long-term management interest

• Short-term capital gains

• Acquisition of physical assets

• Significant control over the business entity