The reason oral evidence is confined to direct perception is reliability, a court can test a witness's account by cross-examining the very person who claims to have seen the event, but it cannot cross-examine an absent third party whose words are merely being repeated by someone else. Using this reliability lens, each option can be checked by asking whose account is actually being tested in court if that option were accepted.
Since the reliability the rule protects depends on the court being able to test the original observer directly, and X was never that observer, his account cannot be admitted.
Therefore, the correct answer is Statement of X is not admissible because he has not seen Z murdering A.