With reference to the financial account, consider the following statements:
1.It measures the change in a country's ownership of international assets.
2.It involves financial assets such as gold, currency, special drawing rights and equities.
3.Generally financial accounts may not appear in a country’s balance of payments.
Which of the statement(s) given above is/are correct?
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Explanation Statement 1 is correct: The financial account is a tracking mechanism for shifts in international asset ownership, and it is composed of two subaccounts. The first sub account includes domestic ownership of foreign assets, such as foreign bank deposits and securities in foreign companies. The second sub account includes foreign ownership of domestic assets, such as the purchase of government bonds by foreign entities or loans provided to domestic banks by foreign institutions.
Statement 2 is correct:The financial account involves financial assets such as gold, currency, derivatives, special drawing rights, equities, and bonds.
Statement 3 is correct:During a complex transaction containing capital assets and financial claims, a country may record part of a transaction in its capital account and the other part in its current account. In addition, because entries in the financial account are net entries that offset credits with debits, they may not appear in a country’s balance of payments, even if transactions occur between residents and nonresidents.
Kutos:Economy Expert
Hello! I am a Economy expert. You can ask any question or request a detailed analysis related to this topic.
