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    Question

    Which is correct about Balance of Payment (BOP)?

    i. It shows all economic transactions between the residents of the country and the rest of the world.

    ii. The transactions are recorded over a definite period of time.

    iii. This includes transaction made by government, corporations but excludes that of by individuals

    iv. In case of BOP crisis Foreign Exchange Reserve will deplete.

    A Only i and ii Correct Answer Incorrect Answer
    B Only i, ii and iii Correct Answer Incorrect Answer
    C Only i, iii and iv Correct Answer Incorrect Answer
    D Only i, ii and iv Correct Answer Incorrect Answer
    E All of the above Correct Answer Incorrect Answer

    Solution

    The balance of payments, also known as balance of international payments of a country is the record of all economic transactions between the residents of the country and the rest of the world in a particular period (over a quarter of a year or more commonly over a year). These transactions are made by individuals, firms and government bodies. A BoP crisis, also called a currency crisis, occurs when a nation is unable to pay for essential imports or service its debt repayments. Typically, this is accompanied by a rapid decline in the value of the affected nation's currency. This could lead to a situationwhere nation's government will exhaust its foreign reserves trying to support the value of the domestic currency.

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