Which of the following is a component of the capital account of India's balance of payments?
A. Interest payments on external debt
B. Software service exports
C. Remittances from abroad
D. Foreign direct investment and portfolio investment
Answer: Option D
Solution (By JKSSB Mock Tests)
Foreign direct investment and portfolio investment are capital account transactions. Software exports, remittances and interest payments form part of the current account.
Explanation:
The Diamond-Dybvig model shows that banks transform illiquid assets into liquid liabilities, providing liquidity insurance to depositors, but that this arrangement is vulnerable to self-fulfilling runs.
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