Macroeconomics
Total balance of non-fnancial capital transfers = value ofnon-fnancialassetsownedbyforeigners in the country − value of non-fnancial assets owned by the country’s citizens abroad Once the components of the CFA are identifed, the balance on thecapitalandfnancialaccountiscalculated as follows:
CFA = fnancial capital transfers + non-fnancial capital transfers (real investment)
Table 2: Hypothetical Example of the CFA on a Country’s BOP in a Given Year Capital and Financial Account
Billions of Dollars ($)
(13) Value of fnancial assets owned by foreigners in the country
500
(14) Value of fnancial assets owned by the country’s citizens abroad
−450
(15) Financial capital transfers = (13) − (14)
50
(16) Value of non-fnancial assets owned by foreigners in the country
3,000
(17) Value of non-fnancial assets owned by the country’s citizens abroad
−3,400
(18) Non-fnancial capital transfers = (16) − (17)
−400
(19) Balance on the CFA = (15) + (18)
−350
Similar to the current account, the capital and fnancial account may not always be inbalancewhich createseithera capitalandfnancialaccountdefcit or surplus. ACFAdefcit,whichisthecaseintable 2,occurswhenacountry’scapitalandfnancialoutflows(imports)exceedcapitalandfnancialinflows (exports). Alternatively, a CFA surplus occurs when a country’s capital and fnancial inflows (exports) exceed capital and fnancial outflows (imports). Study Tips Alwaysrememberthatfactorincome,whichreferstotherewardsoffactorsofproduction(land,labor, capital, and enterprise), is recorded under the current account when traded between countries. Meanwhile, the actual value of assets (ownership), such as land and capital, is recordedunderthe capital and fnancial account. Always differentiate between the inflow and outflow of fnancial or physical capital. Whencountriestradefnancialassets,itistheloanablefundsmarketthatisaffected,notthemoney market.RecallfromChapter4SectionI,thatthesupplyofloanablefundsincludesnetcapitalinflows, representing the difference between the inflows and outflows of capital (funds).
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