Difficulty: Medium

Average Score: 67%

Italy’s current-account transaction is:

Rationale

China buys Italian leather goods.

This transaction represents an export from Italy, which is a component of the current account in the balance of payments. The current account records the trade of goods and services, and inbound transactions from foreign entities are counted as positive contributions.

A (Italian firm buys Vietnam land) YOUR ANSWER

This choice signifies an investment by an Italian firm abroad, which falls under the capital account rather than the current account. The purchase of land does not involve the exchange of goods or services but rather capital flows, making it irrelevant to the current account transactions.

B (Italian firm buys African parks) YOUR ANSWER

Similar to the previous choice, this transaction represents an investment by an Italian firm in a foreign country. It involves the acquisition of assets rather than the trade of goods or services, thus it is classified under the capital account, not the current account.

C (China buys Italian leather goods) CORRECT

This transaction is an export from Italy and directly impacts the current account positively. The sale of Italian leather goods to China represents the trade of goods, making it a quintessential example of a current account transaction.

D (Brazilian firm builds factory in Italy) YOUR ANSWER

This choice describes a foreign investment in Italy, which is categorized under the capital account. The establishment of a factory involves capital inflow but does not represent a trade of goods or services that would affect the current account.

Conclusion

The current account primarily tracks the flow of goods and services across borders. Among the options, the purchase of Italian leather goods by China is the only transaction that contributes positively to Italy's current account, reflecting an export. The other choices represent capital movements rather than current account activities, highlighting the distinction between trade and investment flows in economic accounting.

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