Question : Which of the following statements is true about the financial account of the BoP?
Option 1: It measures the inflows and outflows of financial assets and liabilities.
Option 2: It only covers short-term capital flows.
Option 3: It excludes foreign direct investment.
Option 4: It includes only government-to-government transactions.
Correct Answer: It measures the inflows and outflows of financial assets and liabilities.
Solution : The correct statement is a) It measures the inflows and outflows of financial assets and liabilities.
The financial account of the Balance of Payments (BoP) measures the inflows and outflows of financial assets and liabilities between residents and non-residents. It includes transactions such as foreign direct investment (FDI), portfolio investment, loans, and other types of financial flows.
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