A increase in official reserves with RBI
B decrease in official reserves with RBI
C both a and b
D none
Ans – C)
Imbalance in BoP results in either deficit in BoP or a surplus in BoP.
The final Balance of BoP is always Zero.
If there is a surplus in Bop says $ 100. These $ 100 would be deposited in the central bank. It would result in an increase in the official foreign exchange reserve with RBI.
The final Balance of BoP would be Zero.
On the other hand, It there is a deficit says $ 200 in BoP. These $ 200 would be withdrawn from the foreign exchange reserve with Reserve Bank.
It would result in a decrease in the official foreign exchange reserve with RBI.
The final Balance of BoP would be Zero.
Such transactions are called accomodating transactions as these are undertaken to balance the deficit and surplus of BoP to bring the final balance of BoP as Zero.