The purchase of U.S. government bonds by Egyptians is an example of which of the following?

• A. A current account transaction
• B. An import of goods and services
• C. A capital outflow from Egypt
• D. A transfer payment

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the components of the balance of payments, which include the current account and the capital account (or financial account). The current account records transactions related to goods, services, income, and current transfers, while the capital account records transactions involving financial assets and liabilities.
2. Step 2: Recognize that purchasing U.S. government bonds involves buying a financial asset from another country, which is a movement of capital rather than a trade in goods or services.
3. Step 3: Identify that when Egyptians buy U.S. government bonds, money flows out of Egypt to purchase these foreign assets, which is classified as a capital outflow from Egypt.
4. Step 4: Differentiate this from a current account transaction, which would involve imports or exports of goods and services, or transfer payments such as remittances or foreign aid.
5. Step 5: Conclude that the purchase of U.S. government bonds by Egyptians is best described as a capital outflow from Egypt, reflecting a financial transaction rather than a current account transaction.