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Which of the following constitute capital account?
1. Foreign loans
2. Foreign direct investment
3. Private remittances
4. Portfolio investment
Select the correct answer using the codes given below.
1. Foreign loans
2. Foreign direct investment
3. Private remittances
4. Portfolio investment
Select the correct answer using the codes given below.
- a)1, 2 and 3
- b)1, 2 and 4
- c)2, 3 and 4
- d)1, 3 and 4
Correct answer is option 'B'. Can you explain this answer?
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Which of the following constitute capital account?1. Foreign loans2. F...
Private Remittances forms a part of current account and not capital account
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Which of the following constitute capital account?1. Foreign loans2. F...
The capital account is a component of a country's balance of payments that records the flow of funds between residents and non-residents for capital transactions. It includes both financial and non-financial transactions. Let's analyze each option to determine which ones constitute the capital account.
1. Foreign loans: Foreign loans refer to borrowing from foreign entities such as governments, international organizations, or commercial banks. These loans are considered as capital inflows and are recorded in the capital account. They represent a liability for the borrowing country and an asset for the lending country. Therefore, foreign loans constitute a part of the capital account.
2. Foreign direct investment (FDI): FDI refers to the investment made by a resident in one country into a business or entity in another country. It involves the acquisition of a lasting interest in an enterprise abroad, with the purpose of establishing a lasting relationship. FDI represents a significant capital inflow and is recorded in the capital account. Thus, foreign direct investment is a component of the capital account.
3. Private remittances: Private remittances are funds sent by individuals working or residing in a foreign country back to their home country. These remittances are considered as personal transfers and are recorded in the current account rather than the capital account. They do not represent capital transactions as they are considered as income earned by individuals. Therefore, private remittances do not constitute the capital account.
4. Portfolio investment: Portfolio investment refers to the purchase of stocks, bonds, or other financial assets in a foreign country with the expectation of earning a return. It represents a short-term investment and is considered as a financial transaction. Portfolio investment is recorded in the capital account and represents a capital inflow or outflow. Thus, portfolio investment is a part of the capital account.
Based on the analysis above, the correct answer is option B, which includes foreign loans (1), foreign direct investment (2), and portfolio investment (4). Private remittances (3) do not constitute the capital account as they are recorded in the current account.
1. Foreign loans: Foreign loans refer to borrowing from foreign entities such as governments, international organizations, or commercial banks. These loans are considered as capital inflows and are recorded in the capital account. They represent a liability for the borrowing country and an asset for the lending country. Therefore, foreign loans constitute a part of the capital account.
2. Foreign direct investment (FDI): FDI refers to the investment made by a resident in one country into a business or entity in another country. It involves the acquisition of a lasting interest in an enterprise abroad, with the purpose of establishing a lasting relationship. FDI represents a significant capital inflow and is recorded in the capital account. Thus, foreign direct investment is a component of the capital account.
3. Private remittances: Private remittances are funds sent by individuals working or residing in a foreign country back to their home country. These remittances are considered as personal transfers and are recorded in the current account rather than the capital account. They do not represent capital transactions as they are considered as income earned by individuals. Therefore, private remittances do not constitute the capital account.
4. Portfolio investment: Portfolio investment refers to the purchase of stocks, bonds, or other financial assets in a foreign country with the expectation of earning a return. It represents a short-term investment and is considered as a financial transaction. Portfolio investment is recorded in the capital account and represents a capital inflow or outflow. Thus, portfolio investment is a part of the capital account.
Based on the analysis above, the correct answer is option B, which includes foreign loans (1), foreign direct investment (2), and portfolio investment (4). Private remittances (3) do not constitute the capital account as they are recorded in the current account.
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Which of the following constitute capital account?1. Foreign loans2. Foreign direct investment3. Private remittances4. Portfolio investmentSelect the correct answer using the codes given below.a)1, 2 and 3b)1, 2 and 4c)2, 3 and 4d)1, 3 and 4Correct answer is option 'B'. Can you explain this answer?
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