Q. Explain why in practice the extent to which a measured balance of payments disparity, either a surplus or a deficit, will affect home and foreign money supply is quite uncertain?
Answer: Only some reasons for that to be true first it isn't clear how much financing of the payment gap is done through home official intervention and how greatly through foreign. This division depends on different factors such as the financial goals of the central banks and institutional arrangements governing intervention and second central banks perhaps sterilizing to counter the monetary effects of reserve changes. The last Third one some central bank transactions indirectly help to finance a foreign country's balance of payments deficit but they don't show up in the latter's published balance of payments.