The rise in US interest rates brought an increase in the government's external debt service obligations...

     

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The rise in US interest rates brought an increase in the government's external debt service obligations (debt service comprises interest, coupons, and principal). Identify where cross-border interest payments are recorded in the balance of payments. Explain how you would expect that component of India's balance of payments to change in response to the higher US interest rates. State whether that component of the balance of payments changed as you just predicted. Identify the chart(s) that prove(s) your point. Explain how high-interest rates on dollar-denominated debt could have made the government deficit unsustainable. Be sure to define an unsustainable deficit. Percent of GDP 10% 8% 6% 4% 2% 0% -2% Fin Acct ---Portfolio 1975 1977 1979 1981 1983 1985 1987 1989 1. Financial Account & Components (Positive = Capital Inflow) FDI Other -1901 1993 1995 1997 1999 2001 2003 6% 3% 0% -381975 -6% -9% -12% 1977 2. India: Current Account & Components Curr Account Goods --Services Primary Inc 201 Secondary Inc 0.4% 0.2% 0.0% -0.2% -0.4% -0.6% -0.8% -1.0% -1.2% -1.4% -1.6% 6. Primary Income 100000.0 10000.0 1000.0 C 100.0 10.0 1.0 14. India: FX Reserves Minus Gold 1975 1977 1980 1982 1985 1988 1990 1993 1995 1998 2000 2003 2006 2008 2011 2013 2016 2019 2021 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% 18. Financial Account vs. Changes in FX Reserves -Fin Acct -Reserves Etc. 1975 1987 1979 1981 1983 1985 1987 6861 mtum INTERAMENT The rise in US interest rates brought an increase in the government's external debt service obligations (debt service comprises interest, coupons, and principal). Identify where cross-border interest payments are recorded in the balance of payments. Explain how you would expect that component of India's balance of payments to change in response to the higher US interest rates. State whether that component of the balance of payments changed as you just predicted. Identify the chart(s) that prove(s) your point. Explain how high-interest rates on dollar-denominated debt could have made the government deficit unsustainable. Be sure to define an unsustainable deficit. Percent of GDP 10% 8% 6% 4% 2% 0% -2% Fin Acct ---Portfolio 1975 1977 1979 1981 1983 1985 1987 1989 1. Financial Account & Components (Positive = Capital Inflow) FDI Other -1901 1993 1995 1997 1999 2001 2003 6% 3% 0% -381975 -6% -9% -12% 1977 2. India: Current Account & Components Curr Account Goods --Services Primary Inc 201 Secondary Inc 0.4% 0.2% 0.0% -0.2% -0.4% -0.6% -0.8% -1.0% -1.2% -1.4% -1.6% 6. Primary Income 100000.0 10000.0 1000.0 C 100.0 10.0 1.0 14. India: FX Reserves Minus Gold 1975 1977 1980 1982 1985 1988 1990 1993 1995 1998 2000 2003 2006 2008 2011 2013 2016 2019 2021 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% 18. Financial Account vs. Changes in FX Reserves -Fin Acct -Reserves Etc. 1975 1987 1979 1981 1983 1985 1987 6861 mtum INTERAMENT

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In the balance of payments BOP crossborder interest payments are recorded under the current account The current account is a section of the BOP that t... View the full answer