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Question
What are official reserve transactions?
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Solution
The transactions carried out by monetary authority of a country, which cause changes in official reserves, are termed as official reserve transactions’ (ORT). These transactions are carried out through the purchase or sale of currency in the exchange market for foreign currencies or other assets. The reserves are drawn by selling foreign currencies in the exchange market during deficits, and foreign currencies are purchased during surpluses. When the official reserves increase or decrease, it is called the overall balance of payments surplus or deficit, respectively.
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