Corporate Fin Mgt NDLM.PDF

Payments as interest and dividends, tourism payments for travel and financial charges (-)

Balance on Services Account = A(II)

Unilateral Transfers

Gifts, donations, subsidies received from foreigners (+)

Gifts, donations, subsidies made to foreigners (-)

Balance on Unilateral Transfers Account = A(III)

Current Account Balance: A(I) + A(II) + A(III)

B. Long-term Capital Account

Foreign Direct Investment (FDI)

Direct investment by foreigners (+)

Direct investment abroad (-)

Balance on Direct Foreign Investment = B(I)

Portfolio Investment

Foreigner’s investment in the securities of the country (+)

Investment in securities abroad (-)

Balance on Portfolio Investment = B(II)

Balance on Long-term Capital Account = B(I) + B(II)

Private Short-term Capital Flows

Foreigners’ claim on the country (+)

Short-term claim on foreigners (-)

Balance on Short-term Private Capital Account = B(III)

Overall Balance : [A(I) + A(II) + A(III) + [B(I) + B(II) + B(III)]

C. Official Reserves Account

a. Decrease or increase in foreign exchange reserves.

As regards official reserves accounts, the monetary authority of a country, usually the
central bank, owns international reserves. These reserves are composed of gold,
convertible currencies like US Dollar, Deutschmark, Japanese, Yen, SDR (Special
Drawing Rights), etc. Since BOP is expressed in national currency, an increase in any of
these assets means a use of funds while their decrease implies a source of funds.