Define with suitable examples, autonomous transactions and accommodating transactions in the Balance of Payments of an economy.

Question

Accepted Answer

**Autonomous Transactions:** These are international economic transactions that take place due to economic motives like profit maximisation. They are independent of the state of BOP account and occur on both current and capital accounts.

*Examples:* Merchandise exports/imports, private sector borrowings from abroad, foreign direct investment.

**Accommodating Transactions:** These are transactions undertaken to cover deficit or surplus in autonomous transactions. They occur only on capital account and are meant to correct disequilibrium.

*Examples:* Drawing foreign exchange reserves to finance current account deficit, borrowing from IMF to cover BOP deficit.