Study the following balance of payments data of a country:
| Item | Million USD |
|---|---|
| Exports of goods | 120 |
| Imports of goods | 200 |
| Net invisibles | 50 |
| External commercial borrowings | 18 |
| Foreign investments | 12 |
| Other capital flows | −6 |
| Errors and omissions | −4 |
Which of the following statements are correct?
(A) The current account deficit is 30.
(B) The capital account balance is 30.
(C) The overall balance of payments is in deficit.
(D) Official reserves fall by 10.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A), (C) and (D) only
Work out each account first.
Current account = (120 − 200) + 50 = −30
Capital account = 18 + 12 − 6 = 24
BoP balance = −30 + 24 − 4 = −10
(A) The current account deficit is 30. — Correct. As worked out above, the current account balance is −30.
(B) The capital account balance is 30. — Incorrect. Other capital flows are −6, so the balance is 24, not 30.
(C) The overall balance of payments is in deficit. — Correct. The BoP balance is −10, less than zero.
(D) Official reserves fall by 10. — Correct. A BoP deficit of 10 is met by a fall of 10 in official reserves.
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). …”
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