Which of the following constitute Capital Account? 1. Foreign Loans 2. Foreign Direct Investment 3. Private Remittances 4. Portfolio Investment Select the correct answer using the codes given below.

The Capital Account records all international transactions that involve a change in ownership of financial assets and liabilities. It includes investments and loans. 1. Foreign Loans: These are debt-creating capital flows, where residents of one country borrow from or lend to residents of another country. They are part of the Capital Account. 2. Foreign Direct Investment (FDI): This involves an investor from one country establishing or acquiring a lasting interest in an enterprise in another country. It represents a long-term investment and is a key component of the Capital Account. 3. Private Remittances: These are transfers of money by individuals (e.g., migrant workers) to their home country. These are unilateral transfers and are recorded under the Current Account, specifically as secondary income. They do not represent a change in ownership of financial assets or liabilities in the same way as investments or loans. 4. Portfolio Investment: This involves investment in financial assets such as stocks and bonds, without obtaining a controlling interest. It is a type of capital flow and is part of the Capital Account. Therefore, Foreign Loans, Foreign Direct Investment, and Portfolio Investment constitute the Capital Account. Private Remittances are part of the Current Account. The correct statements are 1, 2, and 4. This corresponds to option B.