Final answer:
The capital account records transactions related to international finance and investment, specifically including direct investment and capital inflows.
Step-by-step explanation:
The capital account is a component of a nation's balance of payments that records transactions related to international finance and investment. Specifically, it includes the record of direct investment and capital inflows (or outflows). Merchandise typically falls under the current account as part of the trade balance, while services, though sometimes included in the current account alongside goods, are not typically categorized as part of the capital account.
Direct investment refers to international investment where an entity acquires a lasting management interest in an enterprise in another country. This might include investments like the purchase or construction of facilities, the purchase of a substantial amount of shares, or any significant reinvestment of earnings from overseas operations.
Capital inflows, on the other hand, refer to the movement of money for investment, trade, or business production, including investments in stocks, bonds, or real estate, as well as international borrowing and lending.
Therefore, the correct answer to the question would be options C) direct investment and D) capital inflows.