Assume that the balance-of-payments accounts for a country are recorded correctly. Balance on the current account = BCA = $130 billion
Balance on the capital account = BKA = −$86 billion
Balance on the reserves account = BRA =?
The balance on the reserves account (BRA),under the pure flexible exchange regime is
A)−$44 billion.
B)$44 billion.
C)$216 billion.
D)none of the options

Question

Quizplus · Accepted Answer

Under a pure flexible exchange rate regime, the balance on the reserves account (BRA) would automatically adjust to zero because the exchange rate would adjust to ensure that the current account and capital account balances offset each other without the need for official reserve transactions.

Assume That the Balance-Of-Payments Accounts for a Country Are Recorded