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(a) In which sub-account and on which side of Balance of Payments account will foreign investments in India be recorded? Give reasons.
(b) What will be the effect of foreign investments in India on exchange rate? Explain.

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(i) Foreign investments will be recorded in the Capital Account of the BOP Account because these give rise to foreign exchange liabilities. Foreign investment will be recorded on the credit side because these bring in foreign
(ii) Foreign investment add to supply of foreign exchange. Demand remaining unchanged, it brings downward influence on exchange rate.

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