Question

In deficit condition of Balance of Payment if the central bank sells foreign exchange then this particular transaction is known as ........

• A. Official reserve sale
• B. Portfolio Investment
• C. Net Invisibles
• D. Net factor income

Hint:

BoP deficit → Central bank sells foreign exchange reserves → Official Reserve Sale.

Answer 1

The Correct Option is A

Step 1: Understand BoP deficit adjustment.
To cover a Balance of Payments (BoP) deficit, a country's central bank utilizes its foreign currency reserves.
Step 2: Eliminate other options.
- Portfolio investment: This involves acquiring foreign financial assets and is distinct from reserve usage.
- Net Invisibles: This category encompasses services, remittances, and income transfers.
- Net Factor Income: This refers to earnings from wages, interest, and profits earned abroad.
Step 3: Apply.
Therefore, when the Reserve Bank of India (RBI) or any central bank sells foreign currency to address a deficit, it is termed an Official Reserve Sale.
Final Answer: \[\boxed{\text{Official Reserve Sale}}\]