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Multiple Choice

Which transaction is part of the capital/financial account rather than the current account?

The main idea here is how the balance of payments splits into current account and capital/financial account. The current account tracks trade in goods and services plus income and transfers, while the capital/financial account records changes in ownership of financial assets and liabilities with the rest of the world. Buying foreign stocks involves acquiring a financial asset located abroad, which changes cross-border ownership of assets. That directly fits the capital/financial account, since it’s about financial flows and investments between countries. The other options fit the current account: importing cars is a purchase of goods, interest payments on existing debt are a primary income outflow (income from investments compiled in the current account), and paying wages to foreign workers is compensation of employees (also part of primary income in the current account).

The main idea here is how the balance of payments splits into current account and capital/financial account. The current account tracks trade in goods and services plus income and transfers, while the capital/financial account records changes in ownership of financial assets and liabilities with the rest of the world.

Buying foreign stocks involves acquiring a financial asset located abroad, which changes cross-border ownership of assets. That directly fits the capital/financial account, since it’s about financial flows and investments between countries.

The other options fit the current account: importing cars is a purchase of goods, interest payments on existing debt are a primary income outflow (income from investments compiled in the current account), and paying wages to foreign workers is compensation of employees (also part of primary income in the current account).