Which of the following constitute Capital Account?
(i) Foreign Loans
(ii) Foreign Direct Investment
(iii) Private Remittances
(iv) Portfolio Investment
A. (i), (ii) and (iii)
B. (i), (ii) and (iv)
C. (ii), (iii) and (iv)
D. (i), (iii) and (iv)
Answer: Option B
Solution (By Examveda Team)
The correct answer is Option B: (i), (ii) and (iv).Let's break down why:
The Capital Account in a country's Balance of Payments records all international transactions of capital assets.
This means it deals with investments and borrowing, not regular income transfers.
(i) Foreign Loans: These are definitely part of the Capital Account because they represent borrowing money from other countries.
(ii) Foreign Direct Investment (FDI): This is when a company from one country invests in a business in another country (e.g., building a factory). It's a key part of the Capital Account.
(iii) Private Remittances: These are money transfers from individuals working abroad to their families in their home country. These are considered current transfers and fall under the Current Account, not the Capital Account.
(iv) Portfolio Investment: This involves buying stocks and bonds of foreign companies. Since it's an investment in financial assets, it belongs to the Capital Account.
Therefore, Foreign Loans, Foreign Direct Investment, and Portfolio Investment are all components of the Capital Account.
This Question Belongs to Commerce >> Business Environment And International Business
Capital account in economics, part of a country's balance of payments, primarily tracks long-term financial transactions and capital flows, including foreign direct investment (FDI), portfolio investments, and changes in reserve assets.