Balance of payments deficit or surplus
Describe how country may run an overall balance of payments deficit or surplus.
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A country can run this BOP deficit or surplus by getting involved in official reserve transactions. Such as, an overall BOP deficit may be supported by drawing down the reserve holdings of the central bank. Similarly, overall BOP surplus may be engrossed through addition to the central bank’s reserve holdings.
Explain “balance of payments” identity and discuss some of its implications under the fixed and flexible exchange rate regimes.
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