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Economics explained


Balance of payments

Financial and capital account

Financial and capital account

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Capital account

The capital account includes, for instance, government debt forgiveness, money brought into and taken out of the country by migrants, the sales and purchases of copyrights, patents and trademarks

Financial account

The financial account records large movements of funds into and out of the country.

The balance on the financial account is made up of flows of capital to and from the non-government sector, such as

direct investment in overseas facilities
portfolio investment (in shares, bonds, and so on)
speculative flows of currency

Movements on government foreign currency reserves are also included under this heading.

Balancing item

The balance of payments as a whole must always balance. This is because any credit item has to be matched by a corresponding debit item.

In practice, however, with so many transactions involved, it is difficult to keep an accurate record. Some mistakes are likely to be made and some transactions may not be included. To compensate for this, a net errors and omissions figure (also sometimes called the balancing item) is included.

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