The following data relate to the balance of payments of a country for a year:
| Item | Million USD |
|---|---|
| Trade balance | −80 |
| Net invisibles | 30 |
| Capital account balance | 62 |
| Errors and omissions | −2 |
Which of the following is correct?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → The overall balance is 10; the BoP is in surplus and official reserves increase.
Given:
Trade balance = −80
Net invisibles = 30
Capital account balance = 62
Errors and omissions = −2
The current account balance is the trade balance plus net invisibles. Adding the capital account balance and errors and omissions gives the balance of the whole BoP.
Current account balance = −80 + 30 = −50
BoP balance = −50 + 62 + (−2) = 10
A balance above zero is a BoP surplus, and a surplus means an increase in official reserves.
Option (2) — 12 leaves out errors and omissions.
NCERT (2026-27):
“6.1.3 Balance of Payments Surplus and Deficit … 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). …” |
