Question:medium
According to the Reserve Bank of India’s (RBI’s) Statistical Supplement released on 19th May, 2023:
“India’s foreign exchange reserves grew for the third straight week and reached near an approximate level of $600 billion.”
The above situation will ----- the ----- side of Balance of Payments account of India.
(Choose the correct alternative to fill in the blanks)
According to the Reserve Bank of India’s (RBI’s) Statistical Supplement released on 19th May, 2023:
“India’s foreign exchange reserves grew for the third straight week and reached near an approximate level of $600 billion.”
The above situation will ----- the ----- side of Balance of Payments account of India.
(Choose the correct alternative to fill in the blanks)
“India’s foreign exchange reserves grew for the third straight week and reached near an approximate level of $600 billion.”
The above situation will ----- the ----- side of Balance of Payments account of India.
(Choose the correct alternative to fill in the blanks)
Show Hint
An increase in foreign exchange reserves is recorded on the debit side of the Balance of Payments as it represents an outflow of domestic currency.
Updated On: Jan 13, 2026
- Increase, Credit
- Decrease, Credit
- Decrease, Debit
- Increase, Debit
Show Solution
The Correct Option is D
Solution and Explanation
The Reserve Bank of India's (RBI) purchase of foreign currency leads to an increase in foreign exchange reserves. This action results in an outflow of domestic currency and is classified as a debit in the Balance of Payments (BoP) under the financial account. Conclusion: As an increase in forex reserves constitutes a debit transaction within the BoP, option (D) is the correct choice.
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