Question : The financial account of the Balance of Payments includes transactions related to:
Option 1: Trade in goods and services
Option 2: Income from foreign investments
Option 3: International transfers of funds
Option 4: Purchase and sale of foreign currency
Correct Answer: Income from foreign investments
Solution :
The correct answer is (b) Income from foreign investments
The financial account in the balance of payments records transactions related to changes in ownership of financial assets and liabilities between residents and non-residents. It captures capital flows and changes in a country's foreign assets and liabilities.
Income from foreign investments: This refers to income earned by residents of a country from their investments in foreign assets, such as dividends from stocks, interest on loans, or profits from foreign direct investment. It reflects the income flows associated with cross-border investments.
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