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Up3
Can someone help me understand what’s the difference between a current account vs financial account?
My understanding:
- Current account: working “business” balance, such as exports and imports
- Financial account: loans, investments, securities
Is this correct? And how does capital account factor in?
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Up1
Current account records the flow of goods and services in and out of a country, including:
- Import and export of tangible goods and services (trade balance)
- Tourism
- Money sent out and in, e.g. foreign aid, sent to families
Financial account tracks the international asset ownership of a country, including
- Bonds and stocks
- Foreign reserves, gold reserves
- special drawing rights (SDRs) held with the International Monetary Fund
A capital account refers to any international capital transfers or changes. This can include
- International transfer of goods and financial assets of migrants
- International transfer of ownership on fixed assets, or funds received for the sale or acquisition of fixed assets
- Gift and inheritance taxes
- Death levies, patents, copyrights, royalties
- Uninsured damage to fixed assets
Financial and capital accounts can sometimes be lumped together depending on who you’re talking to. The CFA Institute reading states candidates should:
Describe the balance of payments and explain the relationship between the current account and the capital and financial account
The subsequent readings also focuses on current accounts – to me this seems like there will be less emphasis on capital account vs financial account, and more on the differences of current account vs capital and financial account.
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