In the balance of payment account, portfolio investment is a part of___________.
Answer & explanation
Correct answer: option 2
The correct answer is Capital Account.
The balance of payments (BOP) is a record of all economic transactions between a country and the rest of the world over a specific period of time, usually a year. It is divided into two main accounts: the current account and the capital and financial account.
- Current account: Records the flow of goods and services, income from investments, and unilateral transfers between a country and the rest of the world.
- Capital and financial account: Records the flow of capital between a country and the rest of the world, including foreign direct investment, portfolio investment, and other investments.
Portfolio investment is a type of investment in which a person or institution purchases financial assets, such as stocks, bonds, or mutual funds, from a non-resident. These investments can be either long-term or short-term. Portfolio investment is recorded in the capital and financial account of the BOP.
Therefore, portfolio investment is a part of the Capital Account.
The other options are incorrect:
- Post office Account: A post office account is a type of savings account that is offered by the postal service. It is not a part of the BOP.
- Bank Account: A bank account is a type of account that is held at a bank. It is not a part of the BOP.
- Current Account: The current account records the flow of goods and services, income from investments, and unilateral transfers between a country and the rest of the world. Portfolio investment is not recorded in the current account.
