Question 53

Italy's current-account transaction is represented by China buying Italian leather goods.

The current-account transaction for Italy involves the exchange of goods and services, which is exemplified by China purchasing Italian leather goods. This transaction reflects an inflow of foreign currency into Italy, contributing positively to its current account.

A) Italian firm buys Vietnam land

This option represents an investment outflow from Italy to Vietnam, which does not contribute positively to Italy's current account. Instead, it would be classified as a capital account transaction rather than a current-account transaction.

B) Italian firm buys African parks

Similar to option A, this choice indicates an outflow of capital from Italy to Africa, which is not a current-account transaction. It does not reflect the sale of goods or services that would positively impact Italy's current account.

C) China buys Italian leather goods

This transaction illustrates an inflow of revenue for Italy, as it involves the sale of goods to a foreign buyer. Such transactions are critical components of the current account, making this the correct answer.

D) Brazilian firm builds factory in Italy

This option represents a foreign direct investment into Italy, which is classified under the capital account rather than the current account. It does not involve the exchange of goods or services that would influence the current account positively.

Conclusion

The correct answer is C, as it directly represents a current-account transaction through the sale of goods to a foreign entity, contributing positively to Italy's economy. Options A, B, and D reflect capital outflows or investments that do not pertain to current-account transactions, thus reinforcing C as the only correct choice.