The decrease in official reserves is called the overall balance of payments ______.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → deficit
In a BoP deficit, the central bank sells foreign exchange from its reserves to cover the gap. So a decrease in official reserves is called the BoP deficit; an increase is called a surplus.
NCERT (2026-27): “6.1.3 Balance of Payments Surplus and Deficit … Alternatively, the country could use its reserves of foreign exchange in order to balance any deficit in its balance of payments. The reserve bank sells foreign exchange when there is a deficit. This is called official reserve sale. The decrease (increase) in official reserves is called the overall balance of payments deficit (surplus). …” |