Question

Which pair of transactions, if of equal value, would keep the Capital Account balanced?

Options

• Selling assets to foreigners and purchasing foreign assets

• FDI inflows and FII (Portfolio Investment) inflows

• Receiving loans from abroad and receiving External Assistance

• Repaying loans and purchasing foreign assets

Answer 1

Balance requires \[\text{Capital inflows} = \text{Capital outflows}\]. Selling assets to foreigners is a capital inflow and purchasing foreign assets is a capital outflow; equal values balance the account. The other pairs list flows in the same direction.