ECONOMICS
BALANCE OF PAYMENTS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Current account
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Capital account
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Either A or B
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None of the above
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Detailed explanation-1: -Foreign direct investment (FDI) refers to long-term capital investment, such as the purchase or construction of machinery, buildings, or whole manufacturing plants. If foreigners are investing in a country, that represents an inbound flow and counts as a surplus item on the capital account.
Detailed explanation-2: -Foreign investments are recorded in the capital account of balance of payments as such investments cause a change in the assets of the country.
Detailed explanation-3: -The components of the capital account include foreign investment and loans, banking, and other forms of capital, as well as monetary movements or changes in the foreign exchange reserve.
Detailed explanation-4: -Foreign investment will be recorded on the credit side because these bring in foreign exchange to the economy.