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 is called ?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Official Reserve Sale.
When a country pays more abroad than it receives, its balance of payments is in deficit, and the gap has to be paid for. The reserve bank can cover it by selling foreign exchange from its own reserves; this is an official reserve sale. The fall in the reserves measures the deficit, because the monetary authorities are its ultimate financiers.
Why the other options are incorrect
Option (1) Autonomous Transactions. — Incorrect. Autonomous transactions are made for their own sake, such as trade or investment for profit. They are the transactions that cause the deficit, not the reserve sale that covers it.
Option (2) Accommodating objective. — Incorrect. Official reserve transactions are indeed the accommodating items of the balance of payments, but ‘accommodating’ is the class they belong to, not the name of the reserve bank’s sale.
Option (4) Overall Balance of Payments. — Incorrect. This balance is the gap itself, the deficit or surplus left by the autonomous transactions. The reserve sale is the means of financing that deficit.
Note: A same/similar question was asked in CUET (UG) in the papers below.
| 2026 | 2025 | 2024 | 2023 | 2022 |
| 13-05 S2 15-05 S1* 06-06 S1* | 31-05 S1* | – | – | – |
* A similar question.
NCERT (2025-26): “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). The basic premise is that the monetary authorities are the ultimate financiers of any deficit in the balance of payments (or the recipients of any surplus).…” |