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    Question

    In the context of the Balance of Payments (BOP), which

    transaction represents an entry in the Financial Account (Capital Account) that would be recorded as a credit (a positive sign)?
    A A foreign company purchases an existing domestic factory (Foreign Direct Investment - FDI). Correct Answer Incorrect Answer
    B A domestic resident receives dividend income from a foreign stock investment. Correct Answer Incorrect Answer
    C A domestic government makes an official foreign aid payment to a developing country. Correct Answer Incorrect Answer
    D A domestic firm pays interest on a loan from a foreign bank. Correct Answer Incorrect Answer

    Solution

    Solution: · The Financial Account tracks cross-border changes in asset ownership. · Credit (Positive) Entries represent a net inflow of funds or an increase in the country's liabilities to foreigners. o FDI Inflow: When a foreign entity (e.g., a company) buys a domestic asset (factory), money flows into the domestic economy. This is an increase in domestic liability (the factory is now owed to foreigners) and is recorded as a credit in the Financial Account. · Why others are incorrect: A (dividend income) is a Current Account Credit (Factor Income). B (foreign aid) is a Current Account Debit (Transfer). D (interest payment) is a Current Account Debit (Factor Income).

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