Question : Which of the following is a component of the capital account?
Option 1: Foreign direct investment
Option 2: international transfers and gifts
Option 3: international borrowing
Option 4: All of the above
Correct Answer: All of the above
Solution : The correct answer is (d) All of the above
All of the options listed are components of the capital account in the Balance of Payments (BoP).
a) Foreign direct investment (FDI): FDI represents the investment made by a resident entity of one country into a business or enterprise located in another country. It involves the acquisition of a lasting interest and significant control in a foreign enterprise.
b) International transfers and gifts: International transfers and gifts refer to the one-way transfer of funds or assets between residents and non-residents without any expected economic return. These can include remittances from migrants, foreign aid, and other unilateral transfers.
c) International borrowing: International borrowing refers to the borrowing of funds by a country from foreign entities or governments. It involves taking loans or issuing bonds in foreign markets to finance domestic investments or cover budget deficits.
