UGC NET COMMERCE January 2017(Paper-II) Q48
0. Match the items of List-I with List-II and indicate the code of correct matching:
| List–I | List–II |
| (a) Accommodating capital flow | 1. Creation of international reserve assets by the IMF and their allocation among member countries in order to improve international liquidity. |
| (b) Autonomous capital flow | 2. Estimate of foreign exchange flow on account of either variations in the collection of related figures or unrecorded illegal transactions of foreign exchange. |
| (c) SDR Allocation | 3. Inflow of foreign exchange to meet the balance of payments deficit, normally from the IMF. |
| (d) Statistical discrepancy | 4. Flow of loans/investments in normal course of business. |
CODES
| (a) | (b) | (c) | (d) | |
| 1 | 1 | 2 | 4 | 3 |
| 2 | 3 | 4 | 1 | 2 |
| 3 | 3 | 4 | 2 | 1 |
| 4 | 3 | 1 | 2 | 4 |
- Option : B
- Explanation : ∎ Balance of trade = Export of goods – Import of goods
∎ Balance of current account = Balance of trade + Net earnings on invisibles.
∎ Balance of capital account = Foreign exchange inflow – Foreign exchange outflow, on account of foreign investment, foreign loans, banking transactions, and other capital flows.
∎ Overall balance of payments = Balance of current account + Balance of capital account + Statistical discrepancy.
If the overall balance of payments is in surplus, the surplus amount is used for repaying the borrowings from the IMF and then the rest is transferred to the official reserves account. On the contrary, when the overall balance is found in deficit, the monetary authorities arrange for capital flows to cover up the deficit. Such inflows make take the form of drawing down of foreign exchange reserves or official borrowings or purchases (drawings) from the IMF. From this point of view, capital inflows are bifurcated into autonomous and accommodating ones. If the inflow of funds on the capital account is for meeting the overall balance of payments deficit, it is termed as accommodating or compensatory capital flow. In other words, accommodating capital inflows aim at putting the balance of payments in equilibrium. On the other hand, autonomous capital flows take place regardless of such considerations. A foreigner paying back the loan or the inflow of foreign direct investment is an apposite example of autonomous capital inflow. This is why autonomous capital inflow goes “above-theline”, while accommodating capital inflow goes “below-the-line”.
Accommodating capital flow is the inflow of foreign exchange to meet the balance of payments deficit, normally from the IMF.
Autonomous capital flow refers to flow of loans/investment in normal course of a business.
Statistical discrepancy refers to estimate of foreign exchange flow on account of either variations in the collection of related figures or unrecorded illegal transaction of foreign exchange.
SDRs allocation is the creation of international reserve assets by the IMF, and their allocation among member countries in order to improve international liquidity.
