Question
Which of the following may result in deficit in Current
Account?Solution
Excessive import of any commodity will cause huge outflow of foreign currency from India, thus causing a Current Account Deficit. Same is true for outflow of FII. FII are short term foreign investment in India’s debt or equity market. These are very volatile and temporary in nature. They may withdraw their investment overnight and invest in some other market for better return. That’s why this is also called ‘Hot Money’
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