Question

What types of transactions are recorded in a capital account?

Answer 1

The capital account of the balance of payments records all financial transactions that involve the movement of capital between a country and the rest of the world. These transactions include:

1. Foreign Direct Investment (FDI): Investment by foreigners in a country’s business or assets, and vice versa.
2. Portfolio Investment: Purchase of shares, bonds, and other securities by foreigners, and investment by residents in foreign assets.
3. Borrowings and Loans: Loans taken from or given to foreign countries or institutions, including external commercial borrowings.
4. Banking Capital: Transactions involving deposits and other banking operations with foreign banks.
5. Other Capital Transfers: Such as migrants transfers, the sale of assets, and non-repatriable capital flows.