Question:
In deficit condition of Balance of Payment if the central bank sells foreign exchange then this particular transaction is known as ........
In deficit condition of Balance of Payment if the central bank sells foreign exchange then this particular transaction is known as ........
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BoP deficit → Central bank sells foreign exchange reserves → Official Reserve Sale.
Updated On: Sep 9, 2025
- Official reserve sale
- Portfolio Investment
- Net Invisibles
- Net factor income
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The Correct Option is A
Solution and Explanation
Step 1: Understand BoP deficit adjustment.
When a country faces a BoP deficit, the central bank uses its official reserves (foreign currency reserves) to finance the gap.
Step 2: Eliminate other options.
- Portfolio investment: Cross-border purchase of financial assets, not reserve use.
- Net Invisibles: Refers to services, remittances, and income flows.
- Net Factor Income: Wages, interest, and profit from abroad.
Step 3: Apply.
Thus, when RBI (or any central bank) sells foreign currency to bridge deficit, it is called Official Reserve Sale.
Final Answer: \[ \boxed{\text{Official Reserve Sale}} \]
When a country faces a BoP deficit, the central bank uses its official reserves (foreign currency reserves) to finance the gap.
Step 2: Eliminate other options.
- Portfolio investment: Cross-border purchase of financial assets, not reserve use.
- Net Invisibles: Refers to services, remittances, and income flows.
- Net Factor Income: Wages, interest, and profit from abroad.
Step 3: Apply.
Thus, when RBI (or any central bank) sells foreign currency to bridge deficit, it is called Official Reserve Sale.
Final Answer: \[ \boxed{\text{Official Reserve Sale}} \]
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