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Balance of Payments - The Financial Account

A Level, IB
AQA, Edexcel, OCR, IB, Eduqas, WJEC

In this revision video we look at the financial account of a country's balance of payments.

Balance of Payments - The Financial Account

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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