Topic Videos
Balance of Payments - The Financial Account
- Level:
- A-Level, IB
- Board:
- AQA, Edexcel, OCR, IB, Eduqas, WJEC
Last updated 14 Nov 2020
In this revision video we look at the financial account of a country's balance of payments.
The financial account includes transactions that result in a change of ownership of financial assets and liabilities between a country’s residents and non-residents. This includes:
1.Net balance of foreign direct investment (FDI)
2.Net balance of portfolio investment flows (e.g. inflows/outflows of debt and equity)
3.Balance of banking flows (e.g. hot money flowing in/out of a country’s commercial banks)
4.Changes to the value of a country’s reserves of gold and foreign currency
Examples of inflows of money on the UK financial account:
- An overseas company announces an inward investment project into the UK renewable energy industry
- Expectations of higher monetary policy interest rates leads to an inflow of hot money into a country’s banking system
- Overseas investors bid to buy new issues of government debt
- A domestic UK company sells one of their foreign subsidiaries and raises several billions of £s as a result which flow back to the UK
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