What does the Capital and Financial Account (KAFA) primarily record?

The Capital and Financial Account (KAFA) primarily records all transactions related to borrowing, lending, and the sale or purchase of assets between a country and the rest of the world. This account captures the movement of capital in and out of the country, reflecting the flow of investment—both incoming and outgoing.

When a country borrows money from foreign lenders, invests in overseas businesses, or sells assets to foreign entities, these transactions affect the financial position of the country and are reflected in the KAFA. This account also includes foreign direct investment, portfolio investment, and other financial derivatives.

The option that specifies only government-related borrowing is too narrow, as KAFA encompasses all sectors of the economy, not just governmental transactions. Similarly, the choice indicating that it only records purchases and sales of existing assets misses a significant portion of the account's purpose, which also includes the borrowing and lending activities critical to understanding capital flow. The option mentioning only international trade transactions overlooks the fact that trade is recorded in a separate account, the Current Account, which deals primarily with goods and services.

Thus, option C accurately represents the comprehensive nature of the Capital and Financial Account, which includes a wide range of capital movements pertinent to the overall balance of payments of a country.