Final answer:
The purchase of a U.S. software company by a Japanese company is recorded as an inflow of money on the financial account of the U.S. balance of payments, which is option C.
Step-by-step explanation:
When a Japanese company buys a U.S. software company, the transaction will result in an inflow of money on the financial account of the U.S. balance of payments. This type of transaction is concerned with investment flows rather than the trade of goods and services, which are recorded in the current account. The correct answer to the student's question is therefore C. inflow of money on the financial account of the U.S. balance of payments.
Transactions involving foreign investment, such as income payments or the purchase of real estate and companies, represent financial capital trade. These are distinct from the transactions recorded in the current account, which typically involve exports and imports of goods and services. When considering the balance of payments, it's important to differentiate between the current account, which deals with goods and services, and the financial account, which primarily deals with financial assets and investments.