(a) “Accommodating transactions are undertaken to maintain stability in the Balance of Payments Account.” Justify the given statement with valid…

Accommodating transactions are commonly undertaken to maintain stability in Balance of Payments (BOP) account. Accommodating transactions are independent of any economic motive. These transactions are determined by the net result of autonomous items such as surplus or deficit in BOP.

Hence, accommodating transactions play a crucial role in maintaining stability in Balance of Payments account by providing a mechanism to address imbalances in international transactions.

The given statement is defended. When the domestic currency of an economy depreciates, domestic goods become relatively cheaper in the international markets. Thereby, increasing the demand of domestic goods globally. Hence, depreciation of currency may promote exports of a nation.