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The Capital Account

 Capital Account
  1. The capita account of a nation integrates its transactions in financial assets in the form of short term and long term lending and borrowings and private and official investments.

  2. In other terminology, the capital account shows overseas flow of loans and investments and represents a variation in the nation’s overseas assets and liabilities.

  3. Long term capital transactions associate to overseas capital shifts with maturity of one year or more and integrate direct investments like construction of overseas plant portfolio investment like the purchase of overseas bonds and inventories and overseas loans.

  4. Alternatively short term overseas capital transactions are for a period ranging among three months and less than one year.

  5. There are two types of transactions in the capital account (1) private and (2) government. Private transactions integrate all classes of investments such as direct, portfolio and short term. Government transactions incorporate loans from and to overseas official agencies.

  6. In the capital account borrowings from overseas nations and direct depicts capital inflows. They are plus items or credits for the reason that these are receipts from overseas individuals.

  7. Alternatively, lending to overseas nations and direct investments in overseas nations represent capital outflows. They are negative items or debits as they are imbursements to overseas individuals.

  8. The net value of the balances of short term and long term direct and portfolio investments is the balance on capital account.

  9. The net value of a nation’s assets and liabilities is nothing but the balance of indebtedness of a nation.

  10. It a nation’s assets are more than its liabilities, then it is a net creditor. If a nation’s liabilities are more than its assets then it is its net debtor.

  11. Another terminology is Basic Balance. It is nothing but the total or addition of current account and capital account.

  12. Economists Sodersten and Reed denotes to the external prosperity or wealth account of a nation shows the inventories of overseas assets possessed by the nation (plus item) and of a domestic assets possessed by overseas individuals or investors (liabilities or minus items).
  1. The Official Statements Account

    1. The official settlements account or official reserve account is actually a part of the capital account.

    2. However the U.K and U.S balance of payments records depicts as a break up account.

    3. The official statement accounts evaluate the variation in a nation’s official reserve assets during the year.

    4. The official reserve assets of a nation comprise of its gold inventories, belongings of its exchangeable overseas currencies and SDRs and its net position in the IMF.

    5. It depicts the transactions in a nation’s net official reserve assets.
  1. Errors and Omissions

    1. Errors and omissions is a balancing item in order to tally the total credits and debits of the above three accounts.

    2. They should tally in harmony with the principles of double entry book keeping and that the balance of payments of a nation always balances in the accounting sense.

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