Question

Official reserve transactions refer to ___________.

• A. transactions undertaken by the central government out of the Consolidated Fund of India
• B. transactions undertaken by RBI to balance the BOP deficit or surplus
• C. transactions undertake by Ministry of Finance on the official reserves
• D. transactions undertaken by public sector banks to maintain their required reserves

Answer 1

The correct option is B transactions undertaken by RBI to balance the BOP deficit or surplus

Official reserve transactions are those transactions that are undertaken by RBI to balance the BOP deficit or surplus. This is done in 2 ways: (a) Finance the deficit by selling assets to foreign countries or by borrowing from abroad. (b) Balance the surplus by lending abroad or purchasing assets from abroad. A decrease in official reserves is known as BOP deficit and an increase in official reserves is known BOP surplus.