If an Australian company sells insurance to a foreign company, how does this affect Australia's balance of payments?
A)It increases exports of services.
B)It increases capital inflows.
C)It increases imports of goods.
D)It lowers the balance on the current account.

Question

Quizplus · Accepted Answer

When an Australian company sells insurance to a foreign company, it is providing a service to the foreign company. This increases the export of services from Australia. This will lead to an inflow of funds from the foreign company, which will increase the balance of payments surplus. Therefore, the correct answer is A). B is incorrect because selling insurance is not a form of capital inflows. C is incorrect because it does not involve importing of goods. D is incorrect because it will not lower the balance on the current account.

If an Australian Company Sells Insurance to a Foreign Company