QUESTION 1 Which of the following transactions is recorded in the capital accoun

Question

QUESTION 1 Which of the following transactions is recorded in the capital account? a. A US tourist spends money on a trip to China. b. A Chinese businessman imports Ford automobiles from the United States. c. The New York Yankees are paid S10 million by the Chinese to play an exhibition game in Beijing, China. d.Ford motor company builds a new plant in China QUESTION 2 Which of the following is not an element of the current account of country A? O a. Exports of goods from country A b. Loans to country A from foreign governments c. Imports of services into country A O d. Income from assets in foreign countries owned by citizens of country A

Explanation / Answer

Question 1

Capital account of the country records transaction that involve money flows pertaining to purchase or sale of assets between the said country and rest of the world, foriegn direct investment by said country and ROW and vice-versa.

When Ford Company builds a new plant in China then this means FDI outflow from US to China.

Therefore, this transaction will be recorded in capital account of US.

The correct answer is the option (d).

Question 2

Current account does not record transactions involving debt. For instance, if a country make loan to another country or takes loan from other country then such transactions are shown in capital account of respective countries and not in the current account.

So, loan to country A from foriegn governments is not an element of the current account of Country A.

The correct answer is the option (b).

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