Question

1) Jill uses some euros to purchase a bond issued by a French vineyard. This exchange a.increases U.S. net capital outflow by more than the value of the bond. b.increases U.S. net capital outflow by the value of the bond. c.does not change U.S. net capital outflow. d.decreases U.S. net capital outflow. Why is the answer C?

Answer 1

The correct option is C).does not change U.S. net capital outflow.

Net capital outflows (NCOs, also called net foreign investment) make reference to the difference between the acquisition of foreign assets by domestic residents and the acquisition of domestic assets by non-residents. Net capital outflows take two forms: foreign direct investment, and portfolio investment. Foreign direct investment implies actively managing the asset or the interest bought, while portfolio investment requires no role at all in management.