CFA CFA Level 1 Current Account vs Financial Account

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Current Account vs Financial Account

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  • This topic has 1 reply, 1 voice, and was last updated 3w by mikey.
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    • hoothoot
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      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?

    • mikey
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      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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