When the difference between autonomous supply of and the autonomous demand for foreign exchange is positive, then the balance of payment condition will be :

Question

Accepted Answer

The correct option is 2:
The term "autonomous transactions" refers to international economic transactions undertaken for economic motives such as profit maximization. These transactions are independent of the country's Balance of Payments (BOP) condition. Autonomous supply of foreign exchange primarily comes from exports of goods and services and autonomous capital inflows (like Foreign Direct Investment), which bring foreign currency into the country. Autonomous demand for foreign exchange arises from imports of goods and services and autonomous capital outflows, which require foreign currency to be sent abroad. When the difference between the autonomous supply and autonomous demand for foreign exchange is positive, it means the country has earned more foreign exchange than it has required for its autonomous transactions. This net inflow of foreign exchange results in a **Surplus** in the Balance of Payments. A BOP surplus indicates that the current and capital accounts (excluding official reserves) have generated a net credit.

The incorrect option is 1:
The BOP condition is **Balanced** only when the autonomous supply of foreign exchange is exactly equal to the autonomous demand for foreign exchange. If the difference between them is positive, the balance cannot be zero or balanced.

The incorrect option is 3:
A **Deficit** in the Balance of Payments occurs when the autonomous demand for foreign exchange exceeds the autonomous supply. This situation represents a net debit or a net outflow of foreign currency from the country, which is the opposite of the scenario described in the question (where the difference is positive).

The incorrect option is 4:
Since the situation described (Autonomous Supply \> Autonomous Demand) corresponds directly to a Balance of Payments Surplus, "None of the above" is incorrect. A clear economic condition exists for this imbalance.