Read the passage carefully and answer the questions based on the passage:

Autonomous and Accommodating Transactions

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.

Suppose the central bank of an economy records a net increase in the foreign exchange reserves for a given quarter. How will this be reflected in the balance of payments account of this economy?

capital account, debit side

The correct answer is Option (3) → capital account, debit side

An increase in foreign exchange reserves means that the central bank has purchased foreign currency from the market — this is an outflow of domestic currency to acquire foreign assets. Such transactions are recorded as accommodating (below the line) items and appear in the capital account of the Balance of Payments (BoP). Since it represents an outflow of funds from the domestic economy (to buy foreign assets), it is shown on the debit side of the capital account.