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    Question

    When India’s Capital Account Surplus exceeds Current

    Account Deficit, then:
    A Forex reserve will increase Correct Answer Incorrect Answer
    B Forex reserve will decrease Correct Answer Incorrect Answer
    C No effect of forex reserve Correct Answer Incorrect Answer
    D May increase or decrease Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    When the Capital Account has surplus that exceeds the deficit of Current Account, then there is a net surplus in Balance of Payment. In other words, there is net inflow of foreign currencies. This will increase the forex reserve of RBI. 

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