Which of the following items can be included in Capital Account in BOP ?
(A) An Indian buys a UK Car company
(B) A Swedish citizen buys shares of Reliance company
(C) Export of Rajasthan's blue pottery to an Italian restaurant owner
(D) Apple I-phones gifted by an Indian company to its employees
Choose the correct answer from the options given below :
Answer & explanation
Correct answer: option 4
The correct answer is (A) and (B) Only.
The capital account in the balance of payments records capital transactions between residents of one country and those of other countries. These transactions can be classified into two categories:
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Direct investment: This includes investments that give the investor a controlling interest in a company in another country. Option (A) is an example of direct investment.
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Portfolio investment: This includes investments that do not give the investor a controlling interest in a company in another country. Option (B) is an example of portfolio investment.
The other options are incorrect:
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Export of Rajasthan's blue pottery to an Italian restaurant owner: This is an example of a current account transaction, not a capital account transaction.
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Apple I-phones gifted by an Indian company to its employees: This is not a transaction between residents of different countries, so it is not included in the balance of payments.
Therefore, the only correct answer is that items (A) and (B) can be included in the capital account in the balance of payments.