Financial account balance
From Hobson's Choice
The Financial account balance refers to (net) international transactions in financial assets, such as overseas sales of securities and bank loans from overseas institutions. It is one of the three fundamental components of the balance of payments identity:
In the equation above, NKT is the standard IMF acronym for financial accounts, CAB is the current account balance, NPNNA is what is now called the "capital account balance," and "errors and omissions" is equal to 0 minus the older expression, "balance of payments" (BoP). Formerly, the term "capital account" referred to international transactions in assets (finance capital). Following IMF practice, this site uses the term "financial account balance" for that. The IMF uses NKT (from net capital transfers) as shorthand for financial accounts, and NPNNA (from "net purchases of nonproduced, nonfinancial assets") for capital accounts.
The financial account balance includes portfolio investment and foreign direct investment (FDI). Portfolio investment consists of foreigners buying stocks or bonds in domestic corporations. FDI includes non-securitized commercial stakes, such as a venture capitalist supplying the finance capital for a startup. When we speak of net capital inflows, we are subtracting domestic investment in ventures overseas from foreign investment in ventures located domestically.
US FINANCIAL ACCOUNTS
(millions of $)
(credits +, debits -)
Line # Category Value 40 US assets abroad (incr./financial outflow) -106 41 US official reserve assets -4,848 46 US government assets -529,615 50 US private assets 534,357 51 Direct investment -332,012 52 Foreign securities 60,761 53 US claims reported by US non-banks 372,229 54 US claims reported by US banks 433,379 55 Foreign assets in the US (increase/financial inflow) 534,071 56 Foreign official assets in US 487,021 63 Other foreign assets in US, net 47,050 64 Direct investment 319,737 65 US treasury securities 196,619 66 US securities other than t-bills -126,737 67 US currency 29,187 68 US liabilities reported by US non-banks -45,167 69 US liabilities reported by US banks -326,589
Capital Account and FFI
Foreign factor income (FFI) is the sum of all factor payments to the owners of productive factors (such as land, labor, and capital). Residents of any nation A will own factors that are present in B, and vice versa. An interesting corollary to this is that foreign factor income may be represented as
As with the other components of the CAB, there is income flowing abroad and income flowing inward. FFI is the net influx, which may well be negative.
- Statistics on the US capital account balance may be found at the Treasury Department website.
- Bureau of Economic Analysis, International Economic Accounts (statistics)
James R MacLean (13:30, 11 October 2007 (PDT))