The reserve bank sells foreign exchanges when there is a deficit in the balance of payment. This sale 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) Government operation — Incorrect. There is no such term.
Option (2) Official sale — Incorrect. There is no such term.
Option (4) Official exchange determination — Incorrect. There is no such term.
Note: A similar question was also asked in CUET (UG) 2026 on 13-05-2026 (Slot 2).
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).…” |