What are official reserve transactions? Explain their importance
in the balance of payments.
The transactions carried by monetary authority of a country,
which cause changes in official reserves, are termed as official
reserve transactions (ORT). These transactions are carried
through purchase or sale of currency in the exchange market for
foreign currencies or other assets. The reserves are drawn by
selling foreign currencies in exchange market during deficits and
foreign currencies are purchased during surplus. When the
official reserves increases or decreases, it is called overall
balance of payments surplus or deficit respectively.
Importance of ORT in balance of payments:
1. Purchase of a
currency is a credit item in the balance of payments; whereas,
sale of the currency is a debit item.
2. It helps to adjust the deficit and surplus in balance
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