The official reserve account, a subdivision of the capital account, is
the foreign currency and securities held by the government
, usually by its central bank, and is used to balance the payments from year to year. … The official reserves increases when there is a trade surplus and decreases when there is a deficit.
What is the meaning of official reserve?
The official reserve is
a country’s holdings of gold reserves, special drawing rights, and tradable foreign currency
. For example, the euro, US dollar, and pound sterling are tradable currencies. … In other words, you can buy and sell them outside the eurozone, US, or UK.
What is official reserve account class 12?
Official reserve transactions refer
to transactions by the central bank that cause changes in its official, reserves of foreign exchange
. Such transactions take place when a country withdraws from its stock of foreign exchange reserves to finance deficit in its overall balance of payments (BOP).
What does the official reserve account include?
Official Reserve Account:
The official reserve account is a part of the capital account, are
the foreign currency and securities held by the central bank of a country
and used to balance the payments from year-to-year. The reserves increase in case of a trade surplus and decrease when there is a trade deficit.
Can official reserves be negative?
In both years, there were “extra money” needed to be set aside as official reserves. … When the overall current, capital & financial account balance is
negative then the country is not paying its way in world trade and has to deplete its official reserves of foreign currencies
.
Are reserves assets or liabilities?
Reserves are considered on the
liability side
of a balance sheet because they are sums of money that have been set aside to be paid out at a future date. As these reserves don’t actually belong to the company, they are not considered assets but liabilities.
What are the components of current account?
There are three components to the current account –
the ‘trade balance’, ‘primary income balance’ and ‘secondary income balance’
. In economic analysis or commentary, most attention is usually given to the trade balance, which records the difference between the value of our exports and imports of goods and services.
What is the importance of official reserve?
The following are the importance of the official reserve transaction: Official transaction reserve
helps to bring balance in the country’s balance of payment
. Purchase of a country’s own currency is a credit item in the balance of payments; whereas, the sale of the currency is a debit item.
How official reserve transactions are helpful in maintaining balance in bop?
The reserves are drawn by
selling foreign currencies in exchange market during deficits and foreign currencies are purchased during surplus
to maintain an overall balance in the BOP. … It helps to adjust the deficit and surplus in balance of paymentsHope this helps…
Is import of machinery recorded in current account or capital account?
Import of Machinery’ is recorded in
the Current Account
and ‘Borrowings from abroad’ is recorded in the Capital Account.
How does appreciation affect current account?
Impact of an appreciation on the current account
Imports are cheaper
and so we see an increase in iMports. This will cause a bigger deficit on the current account. However, the impact on the current account is not certain: An appreciation will tend to reduce inflation.
What is the non reserve financial account?
The financial account tracks direct investment, portfolio in- vestment, and official transactions in reserve assets. … While the Nonreserve Financial Account does not include transactions of central banks (monetary authorities), it
does include transactions by other government agencies
.
What are reserve assets in the balance of payments?
Reserve assets consist of
those external assets that are readily available to and controlled by monetary authorities for direct financing of payments imbalances
, for indirectly regulating the magnitude of such imbalances through intervention in exchange markets to affect the currency exchange rate and/or for other …
What are examples of reserves?
Examples of such reserves include
Dividend Equalization Reserve
, Debenture Redemption Reserves, Contingency Reserves, Capital Redemption Reserves and more.
What are the types of reserves?
Reserves in accounting are of 3 types –
revenue reserve, capital reserve and specific reserve
.
How is free reserve calculated?
‘the aggregate value of the paid-up share capital and all reserves created out of profits of the company and securities premium account after deducting aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet, but does not include …
