Foreign exchange reserves current account

Current account refers to an account which records all the transactions relating to export and import of goods and services and unilateral transfers during a given period of time. Current account contains the receipts and payments relating to all the transactions of visible items, invisible items and unilateral transfers.

A major part of transactions in foreign trade is in the form of export and import of goods visible items.

Payment for import of goods is written on the negative side debit items and receipt from exports is shown on the positive side credit items. Balance of these visible exports and imports is known as balance of trade or trade balance.

It includes a large variety of non- factor services known as invisible items sold and purchased by the residents of a country, to and from the rest of the world.

Understanding The Current Account In The Balance Of Payments

Payments are either received or made to the other countries for use of these services. Unilateral or Unrequited Transfers to and from abroad One sided Transactions: These refer to those receipts and payments, which take place without any service in return. Receipt of unilateral transfers from rest of the world is shown on the credit side and unilateral transfers to rest of the world on the debit side.

Current Account records all the actual transactions of goods and services which affect the income, output and employment of a country. So, highest share price indian stock market shows the net income generated in the foreign sector.

In the current account, receipts from export of goods, services and unilateral receipts are entered as credit or positive items and payments for import of goods, services and unilateral payments are entered as debit or negative items. The net value of credit and debit balances is the balance on current account. Surplus in current account arises foreign exchange reserves current account credit items are more than debit items.

It indicates net inflow of foreign exchange. Deficit in current account arises when debit items are more than credit items. It indicates net outflow of foreign exchange. Capital account of BOP records all those transactions, between the residents of a country and the rest of the world, which cause a change in the assets or liabilities of the residents of the country or its government. It is related to claims and liabilities of financial nature.

Capital account is concerned with financial transfers. So, it does not have direct effect on income, output and employment of the country. All transactions relating to borrowings from abroad by private sector, government, etc.

Current account - Wikipedia

Receipts of such loans and repayment of loans by foreigners are recorded on the positive credit side. All transactions of lending to ecn forex trading platform by private sector and government.

Guidelines for Foreign Exchange Reserve Management

Lending abroad and repayment of loans to abroad is recorded as negative or debit item. Investments by rest of the world in shares of Indian companies, real estate in India, etc.

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Such investments from abroad are recorded on the positive credit side as they bring in foreign exchange. Investments by Indian residents in shares of foreign companies, real estate abroad, etc.

Such investments to abroad be recorded on the negative debit side as they lead to outflow of foreign exchange. The foreign exchange reserves are the financial assets of the government held in the central bank.

So, any withdrawal from the reserves is recorded on the positive credit side and any addition to these reserves is recorded on the negative debit side.

The transactions, which lead to inflow of foreign exchange like receipt of loan from abroad, sale of assets or shares in foreign countries, etc.

Similarly, transactions, which lead to outflow of foreign exchange like repayment of loans, purchase of assets or shares in foreign countries, etc. The net value of credit and debit balances is the balance on capital account. Surplus in capital account arises when credit items are more than debit items. It indicates net inflow of capital. Deficit in capital account arises when debit items are more than credit items. It indicates net outflow of capital.

It is the balancing item, which reflects the inability to record all international transactions accurately.