Question

A domestic resident sells government bonds to a foreign investor. This transaction is recorded in the Capital Account as:

Options

• No entry, since bonds are government debt

• Debit (−), because foreign exchange goes out

• Credit (+), because foreign exchange comes in

• Debit (−), because it is a purchase of assets

Answer 1

Selling assets (here, government bonds) to foreigners brings foreign exchange into the country, so it is a Credit (+) and constitutes a capital inflow. A purchase of assets would instead be a debit.