What are official reserve transactions? Explain their importance in the balance of payments.
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What are official reserve transactions? Explain their importance in the balance of payments.
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Official reserve transactions are transactions by a central bank that cause changes in its official reserve (ORT). These are usually purchases or sales of the company's own currency on the exchange market in exchange for foreign currencies or other assets denominated in foreign currencies. The purchase of its own currency is considered as a credit (+) in the balance of payment, whereas a sale is a debit (-).

The following are the reasons for the importance of ORT in the balance of payments:

 i.The purchase of a country's own currency is a credit item in the balance of payments, but the sale of the currency is a debit item.

 ii.It aids in the adjustment of the balance of payments deficit and surplus. As a result, ORT is critical to every country's economy.
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