Financial Account

AAA

DEFINITION of ' Financial Account'

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 ' Financial Account'

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 ...
  2. Economic Value

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

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

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

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

    Attempts by governments or government agencies to financially ...
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 ...

comments powered by Disqus
Hot Definitions
  1. 80-10-10 Mortgage

    A mortgage transaction in which a first and second mortgage are simultaneously originated. The first position lien has an ...
  2. Passive ETF

    One of two types of exchange-traded funds (ETFs) available for investors. Passive ETFs are index funds that track a specific ...
  3. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another ...
  4. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  5. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center