Question : Which account in the Balance of Payments includes transactions related to foreign direct investment?
Option 1: Current Account
Option 2: Capital Account
Option 3: Financial Account
Option 4: Reserve Account
Correct Answer: Capital Account
Solution : The correct answer is (b) Capital Account.
Transactions related to foreign direct investment (FDI) are recorded in the Capital Account of the Balance of Payments.
The Capital Account of the Balance of Payments includes transactions related to changes in a country's ownership of non-financial assets and capital transfers. Foreign direct investment involves the acquisition of a lasting interest by a resident entity in one country (direct investor) in an enterprise resident in another country (direct investment enterprise). It represents a long-term investment and is considered a capital flow.
