Question

Suppose an Indian manufacturer of steel acquires a steel manufacturing unit in Europe. This type of transactions are recorded in which of the following?

• A. Current Account
• B. Capital Account
• C. Capital Market
• D. Net Invisibles

Hint:

FDI and portfolio investments → Capital Account. Goods/services → Current Account.

Answer 1

The Correct Option is B

Step 1: Understand the Balance of Payments (BoP) components.
- Current Account: Covers trade in goods and services, income flows, and transfers.
- Capital Account: Tracks cross-border investments like FDI and portfolio investments.
- Capital Market: Pertains to domestic equity and debt markets, distinct from BoP.
- Net Invisibles: Encompasses services, remittances, and transfers, excluding asset investments.
Step 2: Analyze the scenario.
Establishing a steel manufacturing facility overseas constitutes FDI, which is categorized under the Capital Account.
Final Answer: \[\boxed{\text{Capital Account}}\]