In a year, a country’s autonomous receipts are 500 million USD and its autonomous payments are 560 million USD. Which of the following is correct?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → The balance of payments shows a deficit of 60 million USD, met by an official reserve sale of 60 million USD.
The balance of payments is judged on autonomous transactions. Autonomous receipts of 500 fall short of autonomous payments of 560, so there is a BoP deficit of 60 million USD.
The gap is closed by an accommodating item: the RBI sells foreign exchange from its reserves, an official reserve sale of 60 million USD. An autonomous inflow cannot meet it, since autonomous items are the ones that made the gap.
NCERT (2026-27): “6.1.3 Balance of Payments Surplus and Deficit … International economic transactions are called autonomous when transactions are made due to some reason other than to bridge the gap in the balance of payments, that is, when they are independent of the state of BoP. One reason could be to earn profit. These items are called ‘above the line’ items in the BoP. The balance of payments is said to be in surplus (deficit) if autonomous receipts are greater (less) than autonomous payments. Accommodating transactions (termed ‘below the line’ items), on the other hand, are determined by the gap in the balance of payments, that is, whether there is a deficit or surplus in the balance of payments. In other words, they are determined by the net consequences of the autonomous transactions. Since the official reserve transactions are made to bridge the gap in the BoP, they are seen as the accommodating item in the BoP (all others being autonomous).” “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. …” |