Answer to Question #134877 in Macroeconomics for December

Question

Which of the following is correct regarding the Balance of Payments (BOP)?
[1] A capital inflow from Zimbabwe to South Africa is recorded in the current account.
[2] A computer software import from China to Namibia, represents a negative item on the BOP
of China.
[3] An investment by a Chinese firm in the steelwork industry in South Africa is recorded as an
inflow of funds in the financial account on the BOP of South Africa.
[4] The BOP records all economic activities that take place within the borders of South Africa.

Answer 1

Balance of payment in a given country is made up of three accounts; Current, capital and financial account.

Current account

Current account records flow of goods and services in and out of the country.

Capital account

It records all international capital transfers(capital inflow and outflows

Financial account

Records foreign investment and ownership in the country.

In line with these information, the correct answer for the question is 3. Foreign investment is recorded in the financial account. Therefore, An investment by a Chinese firm in the steelwork industry in South Africa is recorded as an

inflow of funds in the financial account on the BOP of South Africa.