explain in simple words what is banking capital component of capital account and how does drawdown of foreign assets of the commercial banks leads to inflow of foreign exchange in domestic economy? if we consider Indian commercial bank operating in foreign countries then if there is reduction in assets then the benefit will be derived by the person purchasing it. So there should be no flow of foreign wxchnage. and it will be a loss for the Indian commercial bank operating there.Please clarify.

Dear student,
The banking capital transactions includes all kinds of transactions regarding foreign assets and liabilities of commercial banks. For instance, NRI deposits, holdings of foreign currency, etc. Along with this, the movement of balances of foreign banks and international institutions are also included in this component of capital account.
Now, in case there is a drawdown of foreign assets then there will be an inflow of foreign exchange. This is because, although there is a reduction in assets taking place, but on the sale of that asset, the domestic bank will be receiving the payment for that asset. Also, this payment will be in the foreign currency because it is a foreign asset which is being sold outside. Thus, there will be an inflow of foreign exchange.

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