Capital Account
Definition
The capital account is part of a country's balance of payments that measures the flow of financial assets into or out of a country. It includes investments in physical assets like real estate or machinery, as well as financial assets like stocks or bonds.
Analogy
Imagine the capital account as an investment portfolio for a nation. Just like individuals invest their money in different assets to grow their wealth, countries also attract foreign investments by offering opportunities for businesses to expand or by purchasing assets abroad.
Related terms
Foreign Direct Investment (FDI): Investments made by individuals or companies from one country into businesses located in another country.
Portfolio Investment: Investments made in financial instruments such as stocks, bonds, or mutual funds issued by foreign entities.
Official Reserves: Foreign currency reserves held by central banks to stabilize their own currency value and manage international trade flows.
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