Which of the following can be used to finance Current Account Deficit CAD 1 Sale of reserves of fore...........

Economic Affairs Balance of Payments

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Which of the following can be used to finance Current Account Deficit (CAD)?

1. Sale of reserves of foreign currencies and securities

2. Payment of foreign transactions in gold

3. External loans from IMF

Select the correct answer using the code given below.

1 and 2 only

1 only

2 and 3 only

1, 2 and 3

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Explanation:

A Current Account Deficit can be financed by different sources:
o A country may use a part of its gold stocks and make payments to foreigners by means of gold.
o A country may draw upon its reserves of foreign currencies and foreign securities.
o A country may borrow foreign exchange from different officials and private sources.
o It may mobilise foreign exchange by attracting deposits by foreigners and investment of capital byforeigners. Generally, no country likes to draw upon its gold and foreign exchange stocks. It mobilises foreign exchange by way of loans, deposits and investments.