Which of the following transactions is classified as an autonomous transaction in the Balance of Payments?
1. Import
2.Export
3.IMF Loans
4.Foreign Direct Investment
Select the correct using the code given below:
(a) 1 and 4 only
(b) 1 and 3 only
(c) 2 and 3
(d) 1, 2 and 4
Explanation
In the Balance of Payments (BoP) framework, transactions are categorized as either autonomous or accommodating:
Autonomous Transactions: These are conducted for their inherent economic purposes, such as profit-driven trade activities or investments, and occur independently of a country's BoP status. For example:
.Exports and Imports: International trade in goods and services is primarily motivated by profit, classifying these transactions as autonomous. .Foreign Direct Investments (FDI) and Portfolio Investments (FPI): Foreign investors engage in FDI and FPI based on potential returns, irrespective of the host country's BoP condition.
Accommodating Transactions: These are undertaken to address imbalances arising from autonomous transactions, effectively financing any BoP deficits or surpluses. For instance: .IMF Loans: Countries may secure loans from the International Monetary Fund to finance current account deficits, making such loans accommodating transactions.
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