Question

Your friend George is a salesman for Vandelay Industries, an American company that makes latex. At the end of the year, George’s boss gives him a $5000 bonus. George decides to put the money in a mutual fund which invests in a number of different companies. George’s $5000 will be counted as

Select one:

a. entirely domestic investment

b. either domestic investment, net capital outflow, or both, but there’s not enough information to determine which of these three options is correct from the question

c. both domestic investment and net capital outflow

d. entirely net capital outflow

Answer 1

Net capital outflow means the purchase of foreign asset by domestic resident minus purchase of domestic asset by foreigners.

George decision to put money ($5000) in a mutual fund which invest in number of different countries should be considered as either domestic investment ( if investment is made in domestic companies), net capital outflow (if investment is made in foreign countries companies) or both ( if investment is made on both domestic and foreign), but there is not enough information to determine which of these three options is correct from the question.

So, the correct answer is an option (b).