CFA CFA Level 1 Current Account vs Financial Account


Current Account vs Financial Account

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    • Avatar of hoothoothoothoot
        • CFA Level 1

        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?

        gontata voted up
      • Up

        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.

        gontata voted up
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