Question

What is the importance of official reserve transactions (ORT)?

Options

• The purchase of a country's own currency is a credit item in the balance of payments; whereas, the sale of the currency is a debit item.

• It helps to adjust the deficit and surplus in balance of payments.

• Both purchases of a country's own currency is a credit item in the balance of payments; whereas, the sale of the currency is a debit item, and it helps to adjust the deficit and surplus in the balance of payments.

• None of the above

Answer 1

Both purchases of a country's own currency is a credit item in the balance of payments; whereas, the sale of the currency is a debit item, and it helps to adjust the deficit and surplus in the balance of payments.

Explanation:

Official reserve transactions refer to transactions carried out by a country's monetary authority that cause changes in official reserves (ORT). The purchase or sale of currency in the exchange market for foreign currencies or other assets is used to carry out these operations. During deficits, reserves are depleted by selling foreign currencies on the exchange market, while surpluses are filled by buying foreign currencies. The term "overall balance of payments surplus" or "deficit" refers to when the official reserves increase or drop.

ORT's Importance in the Balance of Payments:

1. In the balance of payments, the purchase of a country's own currency is a credit item, whereas the sale of the currency is a debit item.
2. It aids in the adjustment of the deficit and surplus in the balance of payments.