ECONOMICS
BALANCE OF PAYMENTS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Increase in official reserves with Central Bank
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Decrease in official reserves with Central Bank
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Both A and B
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None of these
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Detailed explanation-1: -A balance of payments surplus means the country exports more than it imports. It provides enough capital to pay for all domestic production. The country might even lend outside its borders. A surplus may boost economic growth in the short term.
Detailed explanation-2: -Usually, a rising trade surplus leads to a rising value of the currency. A rising currency would make exports more expensive, imports less so, and push the trade surplus towards balance.
Detailed explanation-3: -By selling foreign currencies in the exchange market during the period of deficit and purchasing them during the surplus period. The increase and decrease in the official reserve are called as the balance of payments surplus and deficit respectively.
Detailed explanation-4: -Official Reserve Transactions are transactions that are carried out by a country’s monetary authority to modify official reserves. These transactions take place in the exchange market for other assets and foreign currencies, such as the buying and selling of currency.