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 ensure equilibrium in the BoP by addressing imbalances in the current and capital accounts.

Answer 1

Transactions that balance the current and capital accounts of the Balance of Payments (BoP), by covering deficits with surpluses or vice versa, are known as accommodating transactions. These are not market-based; instead, they are initiated by the government or central bank to maintain BoP stability. Example: Securing loans from international organizations like the IMF to resolve a BoP deficit.