Question

"Accommodating transactions are undertaken to maintain stability in the Balance of Payments Account."
Justify the given statement with a valid explanation.

Hint:

Accommodating transactions ensure equilibrium in the BoP by addressing imbalances in the current and capital accounts.

Answer 1

Accommodating transactions in the Balance of Payments (BoP) refer to the transactions that are carried out to bridge the gap between the deficit in the current account and the surplus in the capital account or vice versa. These transactions are not market-driven but are undertaken by the government or central bank to ensure BoP stability. Example: Borrowing from international institutions like the IMF to address a BoP deficit.