Question

A Balance of Payments deficit arises when:

Options

• Accommodating payments > Accommodating receipts

• Autonomous receipts > Autonomous payments

• Autonomous payments > Autonomous receipts

• The value of goods exported exceeds the value of goods imported

Answer 1

A BoP deficit exists when autonomous payments exceed autonomous receipts. This gap must then be covered by accommodating transactions, such as borrowings from the IMF or changes in foreign exchange reserves.