Question : Which of the following is a capital outflow?
Option 1: Foreign direct investment
Option 2: Foreign portfolio investment
Option 3: Borrowing from a foreign bank
Option 4: All of the above
Correct Answer: All of the above
Solution : The correct answer is (d) All of the above
All the options mentioned represent capital outflows. Let's go through each option:
a) Foreign direct investment (FDI): When a country's residents make direct investments in another country, it involves a capital outflow as funds are being invested abroad.
b) Foreign portfolio investment: This refers to the purchase of financial assets, such as stocks and bonds, in another country. When residents of a country invest in foreign portfolios, it results in a capital outflow.
c) Borrowing from a foreign bank: When a country borrows money from a foreign bank, it involves a capital outflow as funds are being received from outside the country.
In all these cases, there is a movement of funds from the domestic economy to foreign entities, representing capital outflows.
