Balance of Payments

Choose the Correct Answer

Correct Answer : Option c

Explanation
Statement 1 is correct: Balance of Payment items which are not dependent upon other BOP transactions is Autonomous Items. Autonomous items refer to those international economic transactions in the current account and capital account which take place due to some economic motive such as profit maximisation. So, these transactions take place automatically and so they occur for the satisfaction they provide. A deficit in the balance of payment the inflow from autonomous transactions is less in comparison to the outflow. As against, a surplus in the BOP account results when the inflow from autonomous transactions is more than the outflow. Autonomous transactions are non-compensating transactions which take place for their own sake, i.e. for making a profit. Also, they are not determined by the situation of other items in the BOP. They occur on both current and capital accounts.

Statement 2 is correct: Accommodating Items as the name suggests are compensating capital transactions that tend to cover the disequilibrium in the autonomous items of BOP. They are undertaken to cover the deficit or surplus in autonomous transactions. They aim to provide financing to the imbalances in other items of the BOP. In short, these transactions are the ultimate result of the status of the balance of payment. Moreover, they are based on autonomous transactions. They fill the gap so as to equalize the balance of payment.