Correct Answer: Merchandise trade

Solution : The correct answer is (d) Merchandise trade.

Merchandise trade refers to the exchange of goods between countries and is not considered a type of capital flow. It is a component of the current account in the balance of payments, specifically the trade balance.

The other options listed are all types of capital flows:

a) Foreign direct investment (FDI): FDI refers to the investment made by a company or individual from one country into a business or project located in another country. It involves the acquisition of controlling ownership in a foreign company or the establishment of new operations in a foreign country.

b) Portfolio investment: Portfolio investment refers to the investment in securities such as stocks, bonds, or other financial instruments of a foreign country. It involves buying and selling financial assets for the purpose of earning a return.

c) International borrowing: International borrowing refers to a country or entity borrowing funds from foreign lenders or financial institutions. It can be in the form of loans, bonds, or other debt instruments.