ECONOMICS
BALANCE OF PAYMENTS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Increase or decrease in official reserves with RBI
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Increase or decrease in rate of commercial banks
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Both A and B
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None of these
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Detailed explanation-1: -Disequilibrium in the BoP can cause an increase or a decrease in the official reserves, depending on whether there is a deficit or a surplus.
Detailed explanation-2: -A disequilibrium in the balance of payment means its condition of Surplus Or deficit. A Surplus in the BOP occurs when Total Receipts exceeds Total Payments. Thus, BOP= CREDIT>DEBIT. A Deficit in the BOP occurs when Total Payments exceeds Total Receipts.
Detailed explanation-3: -When the foreign exchange is being sold by the reserve bank when there is a deficit, it is known as official reserve sale. The decrease or increase in official reserves is known as the overall balance of payments deficit or surplus.
Detailed explanation-4: -A balance of payments disequilibrium can occur when there is an imbalance between domestic savings and domestic investments. A deficit in the current account balance will result if domestic investments is higher than domestic savings since the excess investments will be financed with capital from foreign sources.
Detailed explanation-5: -The official reserves account, which is part of the financial account, is the foreign currency held by central banks, and is used to pay balance-of-payment deficits. Each account is further divided into sub-accounts.