Question : Which of the following is an example of a capital outflow in the balance of payments?
Option 1: Export of goods and services
Option 2: Import of goods and services
Option 3: foreign investment in domestic assets
Option 4: Domestic investment in foreign assets
Correct Answer: Domestic investment in foreign assets
Solution : The correct option is d) Domestic investment in foreign assets
A capital outflow refers to the movement of funds or investments from one country to another. It represents the flow of capital from the domestic economy to foreign economies. Domestic investment in foreign assets, such as purchasing foreign stocks, bonds, or real estate, is an example of a capital outflow. This outflow of capital contributes to the balance of payments, which records all transactions between residents and non-residents in a country's economy.
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