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 aim to stabilize the Balance of Payments by addressing deficits through government or central bank interventions.

Answer 1

Accommodating transactions in the Balance of Payments (BoP) are non-market-driven transactions undertaken by the government or central bank to correct imbalances in the BoP. These transactions are used to bridge gaps when there is a deficit in the current account or capital account. Example: Borrowing from international organizations like the IMF or drawing down foreign exchange reserves to address a deficit.