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What are official reserve transactions? Explain their importance in the balance of payments.

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Transactions by a central bank that cause changes in its official reserve is called official reserve transactions. These are usually purchases or sales of its own currency in the exchange market in exchange for foreign currencies or other foreign currency-denominated assets. In the balance of payment a purchase of its own currency is a credit (+) and a sale is a debit (-)

Importance of ORT in balance of payments: 

i. Purchase of a country's own currency is a credit item in the balance of payments; whereas, sale of the currency is a debit item. 

ii. It helps to adjust the deficit and surplus in balance of payments.

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