Governments maintain a capital account that shows the capital kind of transactions of the economy wi...........

Economic Affairs Others

Governments maintain a capital account that shows the capital kind of transactions of the economy with the outside economies. Which of the following form a part of the capital account?

External lending or borrowing
Interest payments
Foreign Direct investment
Export and Import of Services

Select the correct answer using the codes below.

1 and 3 only

2 and 4 only

1, 2 and 3 only

1 only

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Explanation:

Issuing of external bonds, long-term investment abroad or by foreign residents (FDI), FII etc. form part of the capital account. Capital account shows the net change in asset ownership for a nation. S2 and S4 form part of the current account. Since large capital inflows or outflows can have destabilizing effects on a nation's economy, many countries have controls in place to regulate capital account flows.