What impact does loans from the rest of the world or direct investment by the non-residents in our country have?

positive impact in capital account of BOP

The correct answer is option 1: positive impact in capital account of BOP

Loans from the rest of the world or direct investments by non-residents in a country are recorded in the capital account of the Balance of Payments (BoP). These transactions represent an inflow of capital into the country, which generally has a positive impact on the capital account. Here’s how:

1. Loans from the rest of the world: When a country receives loans from foreign entities, it increases the capital inflow, which is recorded as a credit in the capital account.

2. Direct investment by non-residents: Investments made by foreign entities in the domestic country (e.g., setting up businesses, acquiring shares) also represent an inflow of capital and are recorded as credits in the capital account.

Therefore, both loans and direct investments have a positive impact on the capital account of the BoP.