The measurement of Balance of Payments deficit is based on ___________ transactions.
The measurement of Balance of Payments deficit is based on ___________ transactions.
Solution
Option 1 -> Accommodating transactions are undertaken to finance the deficit or surplus arising from autonomous transactions, not the basis for measuring deficit.
Option 2 -> Autonomous transactions are independent transactions undertaken for profit or economic reasons, and BOP deficit is measured based on these transactions.
Option 3 -> Current account is only one component of BOP, not the basis for measuring overall deficit.
Option 4 -> Capital account is another component of BOP, not the basis for measuring overall deficit.
Hence, Option 2: Autonomous -> Balance of Payments deficit is measured based on autonomous transactions. Autonomous transactions are those undertaken independently for their own sake (like trade, investment, tourism) without considering their impact on BOP. When these autonomous transactions result in net outflow of foreign exchange, a deficit occurs. Accommodating transactions (like borrowing from IMF, using forex reserves) then occur to finance this deficit. The deficit is essentially the gap created by autonomous transactions that needs to be filled by accommodating transactions. -> correct
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