4.1.7

• Capital account


  The capital account of the balance of payments is a small element of it. The main items included are the following:

  • Sale/transfer of patents, copyrights, franchises, leases and other transferable contracts
  • Debt forgiveness/cancellation
  • Capital transfers of ownership of fixed assets
• Financial account


  The Financial account includes transactions that result in a change of ownership of financial assets and liabilities between UK residents and non-residents - this includes:

  • Net balance of foreign direct investment (FDI)
  • Net balance of portfolio investment flows
  • Balance of banking flows
  • Changes to the value of reserves of gold and foreign currency
• What is foreign direct investment

  FDI is the investment from one country into another that involves establishing operations or acquiring tangible assets, including stakes in other businesses.

  FDI flows:

  • Inward investment is a positive for the UK accounts
  • Outward investment is a negative for the UK financial account of the balance of payments
• Global Trade Imbalances


  Imbalances refer to the persistent current account surpluses for some countries contrasted with deficits in other nations. Theory suggests that in a freely-floating exchange rate system, trade imbalances will self-correct.