Question

Which is a popular method mostly used to resolve disequilibrium of balance of payment?

• A. Foreign debt control
• B. Exchange control
• C. Export control
• D. Import control

Hint:

Exchange controls are often used by countries facing large deficits in their balance of payments to stabilize their currency and manage foreign reserves.

Answer 1

The Correct Option is B

Step 1: Understanding Disequilibrium in the Balance of Payments:
The balance of payments records all financial transactions between a country and the rest of the world. Disequilibrium in the balance of payments occurs when there is a surplus or deficit, which may be due to trade imbalances, changes in investment flows, or other financial movements.
Step 2: Methods to Resolve Disequilibrium:
- Foreign debt control: This involves managing the country's foreign debt but does not directly address the disequilibrium in the balance of payments.
- Exchange control: This method regulates the flow of foreign exchange into and out of the country to manage the balance of payments. It is one of the most popular ways to control disequilibrium.
- Export control: Export control can help balance trade, but it is not the primary method for managing the overall balance of payments.
- Import control: While import controls can help reduce a trade deficit, it is not as comprehensive as exchange control.
Step 3: Conclusion:
Exchange control is the most widely used method for managing balance of payments disequilibrium, making option (B) the correct answer.