Service Import in Balance of Payments

Steps:

• Identify transaction: Vietnamese firms purchase insurance (a service) from US firms, making it an import for Vietnam.
• Recall BOP structure: Current account includes services; imports are debits, exports are credits.
• Apply perspective: From Vietnam's viewpoint, paying for foreign insurance outflows funds, recording as debit.
• Confirm category: Insurance qualifies as "other services" under IMF BOP guidelines.

Why C is correct:

• Service imports like insurance are debits in the services component of the current account, reflecting payment outflows to non-residents (IMF Manual of Balance of Payments).

Why the others are wrong:

• A: Involves physical goods, not intangible services like insurance.
• B: Credits record service exports (inflows to Vietnam), not imports.
• D: Current transfers are unrequited (e.g., aid), not commercial purchases.

Final answer: C