CAPITAL AND FINANCIAL ACCOUNT

     

   Capital account. The capital account covers all transactions that involve the receipt or payment of capital transfers (transfers for investment, debt forgiveness, migrants’ transfers, etc) and acquisition disposal of nonfinancial assets and ownership. The volumes of transactions reflected in this item are inconsiderable. The information source for accounting this item are bank reports used for BOP compilation. Financial account. The financial account covers all transactions that involve a change of ownership including the creation and liquidation of external assets and claims of a country, or in other words, the creation and liquidation of liabilities between residents and nonresidents.

     The financial account is defined as comprising all transactions in the external financial assets and liabilities of an economy. The assets and liabilities are classified by three functional categories viz. Direct investment, portfolio investment, and other investment. The assets include one more category i.e. reserve assets.

     Direct investment consists of equity capital, reinvested earnings and other capital (loans to direct investment enterprises). Portfolio investment covers equity securities and debt securities. Debt securities are subdivided into bonds and notes, money market instruments and financial derivatives.

     Other investment includes trade credits, use of the Fund credit and loans from the Fund, other loans, currency and deposits and other assets and liabilities. These investments are classified by type of instrument, domestic sector and original contractual maturity.

     Reserve assets consist of those external assets available to and controlled by the monetary authorities for direct financing of payments imbalances and for intervention in exchange markets to affect the currency exchange rate and for other purposes. Reserve assets comprise monetary gold, SDRs, reserve position in the Fund, foreign exchange assets (consisting of currency and deposits and securities), and other claims.

       For all the financial account positions an increase in a country`s assets and a decrease in liabilities are recorded with a negative arithmetic sign, whereas a decrease in assets and an increase in liabilities are recorded with a positive arithmetic sign. The Financial account transactions are evaluated in market prices. All valuation changes and other changes that do not reflect transactions are excluded from the financial account. The following changes are among those specifically excluded: valuation changes in, or reclassifications of, reserves; changes resulting from territorial or other changes in classification of existing assets (for example, portfolio investment to direct investment, restructuring of short-term loans into longterm ones), valuation changes, which reflect exchange rate or price changes and other changes.