Capital Account Transactions

D

Capital account transactions are composed of direct investment by Americans in real assets abroad (or by foreigners in the U.S.) and loans to and from foreigners.

Capital account transactions refer to the flow of funds between residents of one country and residents of other countries for the purpose of acquiring or disposing of assets. These transactions typically involve longer-term investments and are recorded in a country's balance of payments. Capital account transactions are classified into two broad categories: direct investment and portfolio investment.

The correct answer is D. direct investments by Americans in real assets abroad and loans to and from foreigners.

Let's break down each part of the answer:

1. Direct investments by Americans in real assets abroad: This refers to investments made by American residents in real assets such as land, buildings, factories, and businesses located in foreign countries. These investments involve a significant degree of ownership or control and are made with the intention of generating income or long-term capital appreciation.

2. Loans to and from foreigners: This includes borrowing and lending activities between Americans and foreigners. It encompasses loans made by Americans to foreign individuals, companies, or governments, as well as loans received by Americans from foreign sources. These loans can be for various purposes, such as financing trade, infrastructure projects, or government spending.

Option D correctly captures both direct investments by Americans in real assets abroad and loans to and from foreigners, making it the correct answer.

Now, let's briefly discuss the other answer choices and why they are not correct:

A. Direct investments by Americans in real assets abroad and loans from foreigners: This option incorrectly includes loans from foreigners, but the capital account transactions only cover loans to and from foreigners.

B. Direct investments by Americans in real domestic assets and loans to and from foreigners: This option incorrectly mentions "real domestic assets" instead of "real assets abroad." The capital account transactions specifically focus on investments made in foreign countries, not domestic assets.

C. Unilateral transfers to and from foreigners and direct investments by Americans in real assets abroad: This option incorrectly includes unilateral transfers, which are transactions that involve the transfer of assets without any corresponding payment. However, the capital account transactions do not include unilateral transfers.

E. Unilateral transfers to and from foreigners and loans to and from foreigners: This option incorrectly includes unilateral transfers but excludes direct investments by Americans in real assets abroad, which is a key component of capital account transactions.

Therefore, option D correctly represents the capital account transactions, including direct investments by Americans in real assets abroad and loans to and from foreigners.