Question : Which of the following is not a type of capital flow?
Option 1: Foreign direct investment
Option 2: Portfolio investment
Option 3: international borrowing
Option 4: Merchandise trade
Correct Answer: Merchandise trade
Solution :
The correct answer is (d) Merchandise trade.
Merchandise trade refers to the exchange of goods between countries and is not considered a type of capital flow. It is a component of the current account in the balance of payments, specifically the trade balance.
The other options listed are all types of capital flows:
a) Foreign direct investment (FDI): FDI refers to the investment made by a company or individual from one country into a business or project located in another country. It involves the acquisition of controlling ownership in a foreign company or the establishment of new operations in a foreign country.
b) Portfolio investment: Portfolio investment refers to the investment in securities such as stocks, bonds, or other financial instruments of a foreign country. It involves buying and selling financial assets for the purpose of earning a return.
c) International borrowing: International borrowing refers to a country or entity borrowing funds from foreign lenders or financial institutions. It can be in the form of loans, bonds, or other debt instruments.
