Foreign trade is recognized the world over as one of the most significant determinates of economic development of country. Economic development requires an increase in the stock of wealth producing resources (i.e. investment goods) of country. If a country is deficient in some of the resources, it has also to import consumer goods to satisfy the rising expectations of the people with the improvement in their economic conditions. These imports have to be paid for in foreign exchange. Among the sources for the inflow of foreign exchange available to a country, export proceeds, representing the owned funds, are the most important and stable source of foreign exchange. The other sources – external sources – for the inflow of foreign exchange are as follows:
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i) Foreign direct investment flows
ii) Loans from international financial institutions like IMS, World Bank, Asian Development Bank etc.
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iii) Direct grants/aids from other countries
iv) Investments by non-residents
v) Portfolio investments by foreign institutional investors
vi) External commercial borrowings by commercial and industrial undertakings
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vii) Remittances from abroad through tourism, service, and so on.