Which of the following statements are correct?
(A) When the balance of payments is in deficit, the overall balance is less than zero.
(B) When the balance of payments is balanced, the reserve change is zero.
(C) When the balance of payments is in surplus, the overall balance is less than zero.
(D) In balance of payments equilibrium with no reserve movements, current account plus capital account is zero.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → (A), (B) and (D) only
A BoP deficit, balance or surplus shows up in the change in official reserves, which fills any gap.
(A) When the balance of payments is in deficit, the overall balance is less than zero. — Correct. In a deficit the balance is below zero.
(B) When the balance of payments is balanced, the reserve change is zero. — Correct. If there is no gap, the reserve bank need not buy or sell foreign exchange, so reserves do not change.
(C) When the balance of payments is in surplus, the overall balance is less than zero. — Incorrect. In a surplus the balance is greater than zero.
(D) In balance of payments equilibrium with no reserve movements, current account plus capital account is zero. — Correct. The current account deficit is financed entirely by the capital account, so the two add up to zero.
NCERT (2026-27): “6.1.3 Balance of Payments Surplus and Deficit … In this case, in which a country is said to be in balance of payments equilibrium, the current account deficit is financed entirely by international lending without any reserve movements. 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). …”
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