Which of the following constitute a Capital Account?

1. Foreign Loans
2. Foreign Direct Investment
3. Private Remittances
4. Portfolio Investment

Select the correct answer using the codes given below.

1. 1, 2 and 3
2. 1, 2 and 4
3. 2, 3 and 4
4. 1, 3 and 4

Explanation

Option (b) is correct

• Foreign Loans are part of the Capital Account as they involve borrowing from foreign entities, such as sovereign loans or corporate borrowings. Similarly, Foreign Direct Investment (FDI), which includes long-term investments like establishing businesses or acquiring stakes in foreign companies, is a key component of the Capital Account.
• Portfolio Investment, which involves transactions in stocks, bonds, and other financial instruments without significant ownership, is also recorded in the Capital Account. However, Private Remittances, which refer to money sent by individuals working abroad to their home country, are part of the Current Account under transfer payments and not the Capital Account.

Answer: (b) 1, 2 and 4; Difficulty Level: Easy