Financial Account Tracks Capital Flows in BOP

Steps:

• Define financial account as recording international investments, loans, and asset transfers, excluding current transactions like trade or income.
• Examine options: A involves service payment (insurance), B involves wage payments (income), C involves profit receipts (income), D involves capital outflow (investment).
• Match D to financial account as it represents direct investment abroad.
• Confirm others fit current account for goods, services, and income.

Why D is correct:

• Outward direct investment, like funding a foreign factory, is recorded as a debit in the financial account per IMF Balance of Payments Manual.

Why the others are wrong:

• A: Insurance purchase is a service import in the current account.
• B: Foreign worker wages are primary income payments in the current account.
• C: Profits from abroad are primary income receipts in the current account.

Final answer: D