WBCS.LIVE practice question

Which of the following major financial flows is classified directly under the Capital Account of a country's Balance of Payments (BoP)?

Solve this multiple-choice question and check the correct answer with its explanation below.

Answer options

  1. Foreign Direct Investment (FDI)
  2. Export of merchandise goods
  3. Remittances sent by non-resident citizens
  4. Income earned from foreign investments

Correct answer and explanation

Correct answer: Foreign Direct Investment (FDI)

Explanation: āœ… Correct Answer: A) Foreign Direct Investment (FDI) šŸ“š Explanation: The Balance of Payments (BoP) is fundamentally divided into the current account, which tracks day-to-day trade, and the capital account, which tracks the cross-border ownership of assets. Foreign Direct Investment (FDI) firmly represents the purchase of physical assets or significant business stakes by foreign entities, thereby directly affecting the nation's capital asset base. Therefore, FDI, along with foreign portfolio investments and external commercial borrowings, is strictly recorded in the capital account.