ECONOMICS
BALANCE OF PAYMENTS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A alternate annual deficits and surpluses in the current account
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B a continually growing balancing item
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C a large short-term outflow of foreign direct investment
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D a persistent rise in foreign currency reserves
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Detailed explanation-1: -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-2: -When the central bank buys domestic currency and sells the foreign reserve currency in the private Forex, the transaction indicates a balance of payments deficit. Alternatively, when the central bank sells domestic currency and buys foreign currency in the Forex, the transaction indicates a balance of payments surplus.
Detailed explanation-3: -An increase in foreign exchange reserves raises both liquid and total debt, while shortening debt maturity. To the extent that foreign exchange reserve interest rates are low, increased foreign reserves will cause a permanent decline in consumption, as well as move labor from the non-tradable to the tradable sector.
Detailed explanation-4: -Import of machinery. Import of war equipment. Increasing demand of consumption goods. Price Disequilibrium. Expenditure on Embassies. Competition from international countries. Increasing prices of crude oil. Payments of interest on foreign debts. More items •12-Jul-2021