Which is not a component of Capital Account in the balance of payment?
Answer & explanation
Correct answer: option 4
The correct answer is Net factor income.
The capital account of the balance of payments records the flow of capital between a country and the rest of the world. This includes investments, loans, and other financial transactions.
The components of the capital account are:
- Foreign Direct Investment (FDI): FDI is an investment in a foreign country by a company that acquires a controlling interest in a business in that country.
- Portfolio Investment: Portfolio investment is an investment in foreign securities, such as stocks and bonds.
- External Assistance: External assistance is money that is given by one country to another country in the form of loans or grants.
Net Factor Income is typically part of the Current Account. Net Factor Income involves income earned on foreign investments (such as profits, interest, and dividends) minus the income paid to foreign investors in the domestic economy. It is a component of the Current Account, not the Capital Account.
