Financial Account

A A A

DEFINITION

A component of a country’s balance of payments that covers claims on or liabilities to non-residents, specifically in regard to financial assets. Financial account components include direct investment, portfolio investment and reserve assets, and are broken down by sector. When recorded in a country’s balance of payments, claims made by non-residents on the financial assets of residents are considered liabilities, while claims made against non-residents by residents are considered assets. The financial account differs from the capital account in that the capital account deals with transfers of capital assets. Additionally, the financial account can include claims on land.

INVESTOPEDIA EXPLAINS

The financial account involves financial assets, such as gold, currency, derivatives, special drawing rights, equity and bonds. During a complex transaction that contains both capital assets and financial claims, a country may record part of a transaction in its capital account and the other part in its current account. Additionally, because entries in the financial account are net entries that offset credits with debits, they may not appear in a country’s balance of payments, even if transactions are occurring between residents and non-residents.

Easing access to a country’s capital is considered part of a broader movement toward economic liberalization, with a more liberalized financial account providing the benefit of opening a country up to capital markets. Reducing restrictions to the financial account does have its risks. The more a country’s economy is integrated with other economies around the world, the higher the likelihood that economic troubles abroad may find their way back home. This potential outcome is weighed against the potential benefits: lower funding costs, access to global capital markets and increased efficiency.


RELATED TERMS
  1. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services ...
  2. Economic Value

    The worth of a good or service as determined by people's preferences and the ...
  3. Current Account

    The difference between a nation’s savings and its investment. The current account ...
  4. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output ...
  5. Economic Rent

    An excess payment made to or for a factor of production over and above the amount ...
  6. Economic Stimulus

    Attempts by governments or government agencies to financially stimulate an economy. ...
  7. Economic Network

    A combination of individuals, groups or countries interacting to benefit the ...
  8. Microeconomic Pricing Model

    A model of the way prices are set within a market for a given good. According ...
  9. Mathematical Economics

    Mathematical economics is a discipline of economics that utilizes mathematic ...
  10. Current Account, Savings Account ...

    CASA accounts are most prominent in middle and southeast Asia, and are an attempt ...
Related Articles
  1. The Taylor Rule: An Economic Model For ...
    Economics

    The Taylor Rule: An Economic Model For ...

  2. Adam Smith: The Father Of Economics
    Economics

    Adam Smith: The Father Of Economics

  3. Introduction To Coincident And Lagging ...
    Mutual Funds & ETFs

    Introduction To Coincident And Lagging ...

  4. Exploring The Current Account In The ...
    Economics

    Exploring The Current Account In The ...

  5. What Is The Balance Of Payments?
    Economics

    What Is The Balance Of Payments?

  6. Economic Indicators That Do-It-Yourself ...
    Investing Basics

    Economic Indicators That Do-It-Yourself ...

  7. Leading Economic Indicators Predict ...
    Active Trading

    Leading Economic Indicators Predict ...

  8. Understanding Capital And Financial ...
    Bonds & Fixed Income

    Understanding Capital And Financial ...

  9. Explaining The World Through Macroeconomic ...
    Options & Futures

    Explaining The World Through Macroeconomic ...

  10. Current Account Deficits: Government ...
    Budgeting

    Current Account Deficits: Government ...

comments powered by Disqus
Hot Definitions
  1. Quanto Swap

    A swap with varying combinations of interest rate, currency and equity swap features, where payments are based on the movement of two different countries' interest rates. This is also referred to as a differential or "diff" swap.
  2. Genuine Progress Indicator - GPI

    A metric used to measure the economic growth of a country. It is often considered as a replacement to the more well known gross domestic product (GDP) economic indicator. The GPI indicator takes everything the GDP uses into account, but also adds other figures that represent the cost of the negative effects related to economic activity (such as the cost of crime, cost of ozone depletion and cost of resource depletion, among others).
  3. Accelerated Share Repurchase - ASR

    A specific method by which corporations can repurchase outstanding shares of their stock. The accelerated share repurchase (ASR) is usually accomplished by the corporation purchasing shares of its stock from an investment bank. The investment bank borrows the shares from clients or share lenders and sells them to the company.
  4. Microeconomic Pricing Model

    A model of the way prices are set within a market for a given good. According to this model, prices are set based on the balance of supply and demand in the market. In general, profit incentives are said to resemble an "invisible hand" that guides competing participants to an equilibrium price. The demand curve in this model is determined by consumers attempting to maximize their utility, given their budget.
  5. Centralized Market

    A financial market structure that consists of having all orders routed to one central exchange with no other competing market. The quoted prices of the various securities listed on the exchange represent the only price that is available to investors seeking to buy or sell the specific asset.
  6. Balanced Investment Strategy

    A portfolio allocation and management method aimed at balancing risk and return. Such portfolios are generally divided equally between equities and fixed-income securities.
Trading Center