Question : Which of the following is a capital account transaction?
Option 1: Buying goods and services from a foreign country
Option 2: Receiving foreign aid
Option 3: Making a foreign direct investment
Option 4: Earning income from a foreign investment
Correct Answer: Making a foreign direct investment
Solution : The correct answer is c) Making a foreign direct investment
Making a foreign direct investment (FDI) is a capital account transaction. The capital account of the Balance of Payments (BoP) records transactions related to the acquisition and disposal of financial assets and liabilities between residents and non-residents. Foreign direct investment refers to the investment made by residents of one country in physical assets, such as factories or businesses, in another country.
